Ep # 90: What Is A Financial Purpose Statement?

Benjamin Haas | Jan 13, 2023

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Benjamin Haas 00:02

Hi everyone and welcome to A/B Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! Hey Adam. Happy New Year! Welcome back to podcast time!

Adam Werner 00:30

First one of the new year.

Benjamin Haas 00:32

So, I had this thought. I had heard this and it really did make me go, hmmm. Have you ever noticed that like, in the world of human beings, we have specialists for like every part of our body?

Adam Werner 00:43

Yeah.

Benjamin Haas 00:44

But if you're a veterinarian, you have to know like, you got to be the throat doctor for the frog and like the knee doctor for the ostrich. You need to know every body part of every animal. How's that fair? Did you ever think about that?

Adam Werner 00:56

That's a good point.

Benjamin Haas 00:57

Yeah, crazy thought for the day.

Adam Werner 00:59

I don't know what to do with that information, but it's true.

Benjamin Haas 01:02

Yeah, which has nothing to do with our podcast.

Adam Werner 01:06

Perfect intro.

Benjamin Haas 01:10

But as we thought about a great way to kick off the new year, the concept of the Statement of Financial Purpose is not something that we've never introduced before. But we thought it was a really good way to kind of allow people to hit a reset button and think about, you know, what matters most to them as we go through a little bit of a tough time still out there and get people to focus on planning.

Adam Werner 01:34

I think obviously the end of the year and kind of the beginning of the new year, it's a natural time of reflection for a lot of people. New Year's resolutions are a thing for most people so yeah, I think this will be a good one to kind of put-on people's radars if they haven't already gone through the thought process. I guess we'll get into what we mean by Statement of Financial purpose but for our purposes in planning, it really is kind of the guiding force or at least the North Star for a lot of decisions from a planning perspective. We use it as a tool and it's extremely powerful for us as planners to help align what people are actually doing in their life from a financial perspective with what actually matters and is important to them. We are big proponents of matching those two things together, which shouldn't be a novel idea but I think it still kind of is in our industry of, you know, the behavioral side, more of the fluffy kind of emotional side of finances.

Benjamin Haas 02:43

Yeah, so the commitment that you and I made to each other today is that we wouldn't stay in that fluff and concept but maybe we'd give some examples so people have why it's so helpful to us and why we kind of respond the way that we do. In some ways, I like to think of this as giving us the opportunity to challenge people and their thought processes. Either when they get stressed to go, okay. Understand that. Here's what you've told me before, right? So we can kind of reframe things or sometimes people like to call and say, hey, we were thinking about this. When we have that context, it does help us maybe walk them through the pros and cons and maybe a little bit of a different way that isn't just financial. So, where do you want to start?

Adam Werner 03:27

Well, we use this phrase a lot but we are big believers that money is simply a tool to allow you to live the life that you want to live. Right? And it just kind of struck me, I heard this maybe it was sometime last week. That essentially, we are all just trading our time for money through the course of life. Work is, you're literally just trading your time for money but ultimately for most people, they want to retire away from work or retire to something else differently. But trying to figure out if money wasn't a concern, how would you spend your time? What would you be doing? I'll point back to a recent podcast of ours at some point last year, it was the lottery, right? If you hit the lottery, what would you do? And it was through the lens of if money wasn't a concern, how would you fill your days? What would you do? And really try to drill down on what is actually truly important in your life.

Benjamin Haas 04:30

Yeah, and I think so let's take that one step further. What we're trying to get to is alright, but understanding that there are tradeoffs in this case, time for money and that money is probably going to be finite in your world. Then understanding what really matters most is in many ways, just prioritizing and helping prioritize things so that people don't get into this cycle of analysis, paralysis, paralysis by analysis, where you know, we really can focus what's most important to help them understand, okay, if I do this, then I'm still meeting this need even if it's not the perfect response.

Adam Werner 05:07

Yeah, exactly and I think so from that aspect, I'll go back to something you said earlier. 2022 being the year it was for investments, there really wasn't anywhere to hide but to your point, if someone came to us and said, you know, money is this tool that allows me to spend time with my family, give back to charity, or whatever that may be, if we can then review their financial plan through the lens of that, knowing that the market was down, you know, 20%. Bonds were down 10 to 15%. If what is important to them was not impacted and nothing changed, then hopefully, that gives some permission to not get too worked up over the market movements. We know these things are going to happen over time, it always feels different in the moment and this time, again, we haven't seen inflation like this in a very long time. The Federal Reserve was more aggressive than they really have been in our lifetimes but all of that to kind of say, we can certainly twist ourselves in knots just over investments.

Benjamin Haas 06:13

Yeah.

Adam Werner 06:14

But through the lens of what's important to me, if none of those other things were impacted, then we hope that that gives some leeway, some permission, to kind of take a step back, reassess, and kind of readjust for now the path forward.

Benjamin Haas 06:29

Yeah, bingo. So then, if we could, why don't we make that shift and to maybe sharing some examples of things that we commonly hear so that people can kind of get a sense of what the heck does a Statement of Financial purpose sound like, but maybe more importantly, how it then helps us in certain conversations? I don't know, maybe we'll give an example or two or three in that case. We took some notes. I'm going to read one off here, money's purpose in my life is to support a calm, fulfilling, enjoyable lifestyle.

Adam Werner 07:03

So yeah, so that's great. Love it and then I'll create this scenario because this has happened, right? We've gotten the question from many clients but if this was their statement of financial purpose and the question was, we're thinking about buying a piece of real estate as a second rental or as a rental property, a second property for us separate from our primary home. That may not necessarily align with a calm and enjoyable lifestyle. We've also heard from many clients who have owned rental properties. Lots of we'll call them nightmares or horror stories of all the way things can go bad and go awry. That may not necessarily fit with the Statement of Purpose of I want calm, enjoyable, fulfilling lifestyle. Financially, that rental property may make all the sense in the world for their situation, but it may not fit the other part of what's truly important and where they want to focus their time and efforts.

Benjamin Haas 08:06

Yeah, that's a good example because again, I'm thinking of a client that owns a lot, and it's coming but he's pretty much said, I'm now stressed out because of this, and my vision is 10 years from now, I'm sitting on the couch, I don't have a worry in the world. You know, but in the same way, there are others, so their statement of financial purpose might be about leaving the legacy to their kids and those properties are part of that legacy, that's the emotional attachment to that. In that case, here, we are kind of getting out of the world of like, here's where it makes the most financial sense and recognizing what, clearly there needs to be some non-negotiables. If it's a bad idea, it's our responsibility to say it's a bad idea.

Adam Werner 08:45

For sure.

Benjamin Haas 08:47

Just understanding the purpose of it for them is very helpful.

Adam Werner 08:52

Yeah, and that's what I love about what we do is that the answers are not always the same, right? Nothing happens in a vacuum. So even just that if we're asked that same exact question 10 different times with 10 different people who have 10 different kinds of statements of purpose, the answer is going to be different most of the time because it really does come back to what matters to them, what fits for what's important to them, and just something so simple as should I buy this rental property, it's really going to depend on them and what they're looking to accomplish. It's not just financially yes or no.

Benjamin Haas 09:29

Because I imagine there are others whose statement financial of purpose as they think about retirement is, well, I want to continue to be active. I really like to build things and manage things, fix things. Well, hey, that sounds like that fits the blood, sweat and tears that go into rental property. So yeah, solid point. I'll read the next one because I think it's another one of those situations where, gosh, you could have just responded one way as an advisor, it really might have been inappropriate for the client. The purpose of money in our lives to provide quality connected time together as a family with opportunities to give, travel, and save. Yeah. So, I'm thinking of the situation where COVID hits, you know, we're kind of all tight in boxes and you know, it's a situation where someone's thinking, hey, we're going to buy an RV. We're going to travel the country a little bit to see some things because we can now work remotely, kids are in school remote. Does it make sense to be buying this RV? In some cases, we would say that's probably not the best use of money. What's the long-term plan here? Are we going to keep this thing forever? Are we going to resell it? At the same time, wow, that checks a lot of the boxes in the Statement of Financial purpose.

Adam Werner 10:49

Yeah, and so again, based on everybody's situation being different. This situation was they could afford it and even if they turned around and sold it within a year, and essentially, you know, took a hit on the resale value, what they got out of that as a family, the memories, whatever that experience was for them, they would do that 10 times over. To your point, financially, it may not have made the most sense but to your point, it checked all of those boxes on what was truly important to them and as long as it still falls to us to make sure that the financial side isn't a huge impediment that it's not a crippling kind of impact to their overall plan. But even though it may not have made the most financial sense, it still met what they were looking for, again, kind of emotionally, mentally, all of that component, which is it's interesting.

Benjamin Haas 11:45

Because you can take the other side of that and I'm now just going off the cuff here, client situations, you'll know what I'm talking about where somebody really did take the opportunity to buy a fun toy. Totally could afford it but if I asked him for a Statement of Financial purpose, I know the word being efficient and responsible with money would be in there to the point where he didn't think he was using it enough, so he sold it. So, there's a situation again, what are we to do but try to understand how they view these things, what really matters most and then when they come with the questions to us on does this make sense? Yes, their statement of financial purpose needs to be the lens that we're now looking at it through.

Adam Werner 12:28

So, I'll throw this quote out and I've probably said this on like, four different podcasts at this point but I love it every time in thinking through the Statement of Financial purpose. It's Roy Disney, Walt's brother. His quote being when your values are clear to you, making decisions becomes easier. I believe that 100% and for our purposes through planning, it really does help that decision making process. If it is clear to us what is important to them and it's clear to them what's important to themselves, it really does help that decision making process to either just remove things that don't make sense or to really confirm, yes, this not only meets what you're looking for but financially, it also makes sense.

Benjamin Haas 13:13

Yeah, bingo. I think we have one more point to make and maybe it's just to share of course, there is the planning component to this. So, it's not just helping them with their ideas and their decision making but I think understanding the Statement of Financial purpose also puts us in the spot then where we kind of know which strategies might make the most sense to recommend to them.

Adam Werner 13:39

Yeah, so not only does it work, as I'll say, reactive, meaning when they come to us with questions, we react, but I think it does work the other way oftentimes too where we can be proactive. If we know what's important to them, then yes, we can think about certain strategies that align with what's important to them and we can be proactive in that way. A good example and this maybe too specific, but for many people that are in the RMD phase, required minimum distributions, so we're thinking older people. They may not need the RMD, there's a provision called the qualified charitable distribution that allows you to give to charity directly from your retirement account and it also satisfies your RMD so you're avoiding the income tax on a distribution that may come to you. By the way, if you are charitably inclined, if your statement of financial purpose is to give back to your community in some way, shape, or form. It's a way to make a peanut butter cup out of those two things, right? You got to learn you got some chocolate, let's mix them together. Everybody's going to be happy. You avoid the taxes, you get to give to the charity, and it aligns with what's actually, you know, important to you and your life.

Benjamin Haas 14:52

Yeah, it's probably the easiest example for us and again, I think we're kind of fortunate. We work with a lot of charitable people. So yeah, we hear that it opens us to okay, now here are the financial strategies that we know will align and make you happy. Let's give that education, let's give people that opportunity to implement those things.

Adam Werner 15:09

And I think there's many more examples in that light, you know, the legacy side of things, making things efficient for your kids or grandkids or whatever that may look like that. Oftentimes, we see that side of things where any one decision today can have those domino effects in the future and if somebody knows what's truly important to them and if it's a family, for a lot of people, there are strategies. There are things that can kind of be put into motion sooner than later to make sure that it fits.

Benjamin Haas 15:41

Yeah, so I guess I'll just reiterate where we started. I think it's a prime opportunity if you haven't done it. I know some people think of like New Year's resolutions. They have to start something new or you know, you have to try to better your life in one way, shape, or form. This is supposed to be a little more overarching because I think for most people, this statement of financial purpose probably isn't going to change too much in life, like you said, your values are your values. But if you haven't gone through that exercise before, we're certainly happy to help people think about it because it really does take, I think financial planning to that next level where things just start to feel more aligned when you go from what matters to what should I really be doing?

Adam Werner 16:23

Yeah. There's certainly a set of questions that we kind of walk people through to kind of figure that out or start to dive in that line of thinking. So, for anybody that wants to go through this or just, you know, is starting to think about it themselves and kind of wants some guidance along the way to help figure it out. We'd love to help. It's super, super interesting to me. I think it's interesting to us to help connect the financial world to the emotional, mental side of things and aligning that for people.

Benjamin Haas 16:58

You got it.

Adam Werner 16:59

Okay.

Benjamin Haas 17:00

Thanks for all your insights as always. Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in this show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you consult with your attorney, your accountant, and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!

Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.

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Ep # 90: What Is A Financial Purpose Statement?