I attended a seminar recently and a very interesting question was posed for suggested inclusion in client meetings and in questionnaires. It was simply “what is the money actually for?”
A simple enough question, but one which I suspect many people may not have a simple answer to.
Money is a strange thing and it makes us behave in very peculiar ways.
It is also a very emotional thing, despite the fact that human emotion (generally speaking) leads to poor financial decision making.
You see, we often meet people who have accumulated very significant wealth. I do wonder however if people really know what the money is for.
Very often we meet people who are still working in jobs they dislike because ‘they need to’.
When we look at the numbers however we often get a different story. On occasion we find people have actually worked for too long. This is fine if you love your job, but how would you feel if you worked for 3 years longer than you needed to in a job you hated?
When we ask what the money is for, many people will say financial security, despite the fact that they don’t really have any definition for what ‘financial security’ really means.
While I fully appreciate the benefit of the emotional comfort money can bring (in fact, I did my masters dissertation on this very subject), I fear that just saying ‘financial security’ is a very easy way to avoid doing some of the thinking to truly define what is required to achieve this fabled thing called ‘financial security’.
As with the vast majority of money related goals, it is usually possible to put a number on this. We just have to do the thinking work first. For some people, financial security means having enough money to live on for 6 months – pretty easy to define. Multiply monthly expenses by 6 and there you have it.
For others, financial security might be having enough money to live on for the rest of their lives. A much more complex calculation, but with the right maths, we can still get there. Granted, you would need to build in some assumptions and you would most likely wish to add a large contingency pot on top of the final number, but the point is you still arrive at a number.
When we run the numbers in this way, we often find that people have significantly more than they need for whatever goals that they wish to achieve (financial security included) and so at this point we come back to a slightly re-worded version of the question; ‘what is the excess money actually for?’
My conclusion, is that most people don’t know. They have worked very hard to accumulate a pool of assets, but perhaps not then thought about what to do with any excess funds over and above their own needs.
This is where the conversation often turns to lifetime gifting or philanthropy – two things which have been shown to deliver the very greatest levels of satisfaction, but which people often shy away from out of fear of running out of money.
With the right planning beforehand, this needn’t be a concern and this opens up possibly the greatest and most noble thing any of us can do with our money – help others!