by Brian Hufford, CPA, CFP
What are your financial dreams? This is one of the inane questions that people who write about money ask. Whenever I hear this question, “What are your financial dreams?” I translate it to “What outrageous things would you buy if money were no object?” I am a watch collector. If money were no object, the outrageous watch I would buy would be a Richard Mille RM008 V2 Split Seconds Chronograph with Tourbillon. It costs $484,200. Half a million dollars would feed a lot of hungry people. So even if I could achieve my “financial dream,” it is unlikely you would ever see me wearing this watch.
I certainly do not have that neighborhood-millionaire mindset either. I would not wear a $100 Timex watch just to see 20 years from now the compound growth in my savings account - an amount that I had accumulated by not having a passion for my watch collection. I am not sure which is worse, financial dreams or the neighborhood-millionaire mindset.
So why do two dentists, with the same income, reach the age of 62 and one has $5 million in savings while the other has $25,000 in an IRA? Is it because the former has a neighborhood-millionaire mindset and wears cheap watches?
I think the reason goes much deeper than that. My own definition of financial success is a balance between supporting needy people in my community, having a great watch collection, working because I want to work, and doing things I love. I have found that, as my accumulated savings increase, I have a great deal more courage to work only at what I love.
During my career, I have observed one trait that truly distinguishes financially successful dentists from their peers. The more of this trait a dentist has, the more financially successful he or she is. This trait is not frugality, like the neighborhood millionaires. I call this trait financial intention.
Intention is defined in the dictionary as the act of deciding on a future outcome or result. In effect, financial intention is imagining a future financial outcome, then arranging your activities to make it a reality. Many people suffer from what I call the Groundhog Day Syndrome. In effect, they have no future. They are just reliving the past, one day at a time. They are happy if another month passes, and they have paid their bills while not accumulating any more debt. Somehow they are unable, or unwilling, to imagine a greater financial outcome than just getting by from day to day.
In my life, I have created a process to help live with financial intention. I call it the Journey of Financial Intention. It has five steps. Let me show you how this process works.
Take a piece of paper and make five columns: Frustration, Principles, Financial Intention, Goals, and Action Plan. I always start the process with my financial frustrations. Suppose one of my financial frustrations is that I don’t know where my cash goes every month. Maybe I am spending too much. In the Frustration column I write: “I am frustrated because I don’t know whether I am spending too much.”
In the Principles column, I examine how my frustration violates my financial principles. So I might write something like: “If I don’t know how much I am spending, I always feel a sense of scarcity and am less likely to achieve my annual giving, watch buying, and saving goals.”
In the Financial Intention column, I list what an intentional solution would look like. I might write: “If I were displaying financial intention for how much I spend, I would start each year with a plan for spending, giving, and saving. Monthly, I would compare my spending with my plan.”
The fourth column is for Goals. Goals have to comply with the SMART acronym, which stands for Specific, Measurable, Achievable, Relevant, and Time-based. My goal might be: “By Oct. 31, I will develop an annual spending plan with my bookkeeper, as well as a system to track spending against the spending plan every month.”
The last column is for Action Plan steps. These are simply the specific steps I will take to achieve my goal.With this process, I use the emotional energy of my financial frustrations and convert them into financial intentions to create a positive result in the future. Why not convert your financial frustrations into financial intentions with the Journey of Financial Intention?
Brian Hufford, CPA, CFP®, is CEO of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. The company is recognized as the only strategic alliance partner for financial planning services for the Academy of General Dentistry. Contact Hufford at (888) 470-3064, or at [email protected].