Financial planning should be about the journey and the destination
鈥淚n the fixed mindset, everything is about the outcome. If you fail 鈥� or if you鈥檙e not the best 鈥� it鈥檚 all been wasted.鈥� This passage is from 鈥�,鈥澛�Stanford University professor Carol S. Dweck鈥檚 book聽on the psychology of success.聽It聽describes a restrictive聽approach that I鈥檝e seen some people聽take to聽financial planning.
Investors with a 鈥渇ixed mindset鈥� often聽miss out on living their lives fully, sacrificing their聽quality of life today for far-away financial goals. Those with a balanced perspective, on the other hand, plan for the future, but don鈥檛 forget to enjoy the present.
Destination-driven investors
Investing offers a prime example of the troubling, destination-driven mindset that Dweck describes. It鈥檚 generally accepted in investing, that, all other things being equal, . As a result, people聽are constantly encouraged to focus on the long term. The underlying message is: Earn and sock away as much as you can now, try not to look 鈥� for as long as you can 鈥斅燼t the present, and you鈥檒l be rewarded down the line.
This logic is financially sound and has worked for investors for decades, but the unintended consequence is an obsession with short-term . With all of their attention and resources focused on achieving long-term goals, investors often agonize over the day-to-day market movement they associate with their ultimate聽success or failure.
Some people聽subjugate, and even ignore, their quality of life during their聽primes, in hopes of having a high quality of life later on, when they might not be able to enjoy it. It鈥檚 as if the bulk of their working lives are聽merely a preamble to the more significant financial milestones they hope to achieve many years from now. This seems an oddly contradictory, if not vicious, cycle.
Why investors聽prioritize the future
Part of the reason for this fixation on the future is that financial professionals tend to聽make recommendations based solely on outcomes, and don鈥檛聽spend enough time or energy understanding the more immediate, human side of the equation.
And it鈥檚 no wonder: Many fundamental wealth management questions revolve around the destination, rather than the journey. For instance:
- How much do I need to ?
- What withdrawal rate will allow my savings to sustain me throughout the rest of my life?
Yes, these questions are important, and聽they must be answered based on each investor鈥檚聽specific circumstances and goals.
But rarely do you hear financial advisors asking clients,聽鈥淎re you happy?鈥� Perhaps that鈥檚 because it鈥檚 a much more difficult question which聽steers advisors away from the analytical, numbers-based terrain in which they鈥檙e most comfortable.
How investors can find balance
As a financial advisor, I have many clients who can鈥檛 enjoy the now without feeling that their future is totally secure. And I聽know clients who can鈥檛 fathom the idea of de-prioritizing聽their present happiness for a future that鈥檚 anything but a given. The ones who seem most content, however, understand聽the need to plan for the future, but know how to enjoy themselves in the present.
How do people聽reconcile these seemingly contradictory mandates? Perhaps they have聽the growth mindset that聽Dweck says聽鈥渁llows people to value what they鈥檙e doing regardless of the outcome.鈥� They might also be聽open and introspective enough to let go of the things they can鈥檛 control and change the things they can.
It also helps to work with an advisor who believes that balance is important to聽the success of any long-term financial plan. To encourage this perspective, some advisors take a psychological approach to聽new client meetings, asking questions like 鈥淚f money were no object, what would you do with your time each day?鈥� or 鈥淲hat is your first memory dealing with money?鈥� This way, clients can get help map out their road to future financial success and let themselves more fully enjoy the trip.
聽is a financial planner and the co-founder of聽. Learn more about Gavin on NerdWallet鈥檚 . This article first appeared at .
