Don't tell your financial planner your priorities... show them.

One of the first questions a financial planner will usually ask is: what are your priorities? Now, this is one of those questions that is well meaning but ultimately useless… unless it’s followed up with a simple test.   Let me explain.

Priorities tend to be conflicting. This is because we only have so many resources to go around (in this case, money). If we had unlimited resources, we wouldn’t even have to have this discussion, because we could just have everything we want. The reality is though, there is an opportunity cost for every decision we make. For example, every dollar that I spend shouldn’t just be compared to ‘did that purchase make my life better than before?’. It should also be compared to ‘did that purchase make my life better than before… as well as better than my life would have been if I spent it elsewhere?’.

We hear people list some priorities much more regularly than others. Some of these include ‘not running out of money in retirement’ or ‘paying off my home loan’. And there also tends to be priorities that we very rarely hear people tell their financial planner, such as ‘having the latest and greatest technology’ and ‘driving a brand new car’.

And yet… if everyone is saying they want to make sure they don’t run out of money in retirement, or to pay off their home loan, and not many people are saying that they really need to have the latest consumer goods… why do Apple keep releasing a new iPhone?

So what is the simple test we can do with our clients to help them work out what their priorities really are? Step 1, is to complete a budget listing all expenses. Then, we go through this list of expenses and organise them from biggest to smallest. Now the reality is that list, regardless of what you say your priorities are, tells you exactly what your priorities are, from most important to least important.

Please don’t think this is a dig at people spending money. We’re definitely not saying you should just be saving every spare dollar you can, or even that there are right and wrong things to spend money on. The only person that has to approve of your ‘real’ priorities is you. For example, one of our team (without mentioning any names) recently completed their own budget, and the single biggest expense was ‘overseas travel’. But this was actually good news, given that this is one of the things that they consider most important and valuable to them.
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If you complete this exercise, and the things that you’re spending the most money on are also the things you listed as your main priorities, that’s great. If you found that the things you’re spending the most money on aren’t necessarily the things that you said were your priorities… it might be time to meet with a financial planner who will take the time to get to know you, and can help you match your spending with your priorities. Now if you’ll excuse me, I’ve got a trip to Japan to book.

Written by Dallas Davison.