The Critical Difference Between A Financial Plan And A Life Plan

As you go through life, the term “financial plan” eventually makes an appearance. It’s the idea that you need to consciously think about your money affairs if you’re going to reach various material goals and objectives. Life is short – as people continue to remind you – so having a plan can help you get the most out of it as possible.

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However, thanks to COVID-19, many people are reimagining what it means to have a financial plan. There are good reasons to believe that the economy isn’t going to recover any time soon and that right now we are witnessing real losses in output. Things aren’t moving forward in the way that they once did. And that’s creating dreadful issues for anyone saving long-term. 

Most financial planners are still now aware of the impact that the pandemic is likely to have on people’s long-term finances. Secular returns in the stock market are likely to fall across the remainder of the 2020s, leading to all kinds of issues for pensions and investment accounts. 

The job market also looks like it is going to be in disarray for some time. High levels of unemployment mean that wages are unlikely to rise in the way people hoped they would before the economy went into recession. Right now, there are a lot of people looking for work, and relatively few roles to keep them occupied. 

Life Plans Versus Financial Plans

This change in circumstances is leading many people to reevaluate their stance towards their financial goals. A new paradigm is taking over that promises to fundamentally rethink the way we conceptualise money. 

In the past, financial planners would ask their clients what they wanted to achieve with their money and then put a plan of action in place to achieve it. People would say things like “I would like to buy a house” or “I’d like to have enough money for a car.” You get the picture. 

What was interesting about this process, though, was how it saw financial planning as being independent of the rest of a person’s life. It didn’t matter how many years they spent in a dead-end job earning a pitiful salary; so long as they got their material rewards, they were happy. 

With recent events, though, things are changing. The average person is beginning to realise that earning money and having cash in the bank doesn’t equal a healthy and satisfying life. In fact, it is a very minor part of it indeed. Practically everything that’s worth having is free. And work actually takes up the most precious resources we have: time. 

The alternative is what is being dubbed “life planning.” This approach takes a more holistic look at how to live your life and considers many more factors than money alone.

A life plan, for instance, takes into consideration the fact that you hate your job and want to get away from it as soon as possible. It says that if the experience of working at a particular company is so bad, then the financial reward isn’t worth it, even if you’re earning big money. You’re much better off orientating your life around living with less money if you’re likely to enjoy it more 

A life plan also means selecting the best life insurance for your family. Ideally, you want to put in place measures that not only protect your personal finances but also those of the people you care about the most. 

Sticking With A Life Plan

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Sticking with a life plan can be challenging because it forces you to look at your economic circumstances in a completely different way. Fundamentally, it is asking you to consider what is important to you. And that can be unnerving in a culture that uses money as a proxy for success. 

The question you always have to ask yourself when creating a life plan is the extent to which you’re master of your destiny. If you’re earning big money in an investment bank but hate the work, you’re sacrificing your authentic self for financial gain. It might seem tolerable in the short-term, but you can never stick it out over the long-run. 

Life plans enable you to live a more holistic life than a financial plan. You’re not just focusing on your next material acquisition. Instead, you’re thinking about what you value and then organising your money around that. You’d be surprised by how liberating this process can be. Suddenly you have the freedom to pursue things in your life that are valuable for their own sake. 

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