The “Personal” in Personal Finance

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Note

This article originally appeared in the The Grand Junction Sentinel, December 18, 2022.

During a recent new client meeting, we had a couple tell us they had purchased property in north Denver several years ago. What was once a run-down area in the stockyards has now become a hot market, with development skyrocketing as the neighborhood reinvents itself. As a result, this couple had a valuable piece of real estate but lacked a plan for it. Should they develop it? Continue to lease it? Sell it?

Considering their overall financial picture, they didn’t have a particular need for the money. They were in a good place money-wise, but a recent cancer diagnosis made them desire simplicity. What should they do?

One of my favorite sayings is that personal finance is far more personal than finance. For years, one of the core tenets of our financial planning has been encouraging clients to pay off their mortgages when possible. This may sound counterintuitive. For many years, the prevailing wisdom was to invest that money instead. Low-interest rates drove the narrative that more money could be made by placing extra mortgage payments in the stock market.

Generally speaking, this was factually correct. Why pay off a 3% mortgage when, on a long-term average, the S&P 500 returns just over 10%? Simple math would tell you the wisest course of action was putting extra cash to work in the market. But the best advice isn’t always driven by cold hard math.

For many clients, the comfort of knowing their primary residence was paid off felt like a better option. Often, having their most significant monthly expense eliminated paid a huge dividend in the relief and confidence department. Can you put a price on that feeling? The reality is that the “right” decision for a client has nothing to do with the financial dollars and cents but rather the personal satisfaction of owning the place where they live.

As an advisor, I hear all types of financial questions, but they almost always come after the important ones. Questions like, “Will I have enough?” or “Will I be okay?” These questions get at deeper feelings of security, trust, and well-being. But, unfortunately, generating a return one or two percentage points higher does little to answer these questions or reassure someone that they’re on a good path forward.

As a student of personal finance and behavior, I’m always looking for new ways to explore these questions with clients. A recent reading of “Three Questions for Financial Life Planning” by George Kinder offered a framework I like. He encourages people to answer three questions:

First, imagine you are financially secure. You have enough money to take care of your needs today and in the future. How would you live your life? Would you change anything? Dream; don’t hold back. Describe a life that is complete and richly yours.

Next, imagine you just visited your doctor, and they tell you that you have 5-10 years to live. You will not feel sick or have any “notice” of your death. What will you do with the time you have remaining? Would you change anything in your life today, and if so, how will you do it?

Now imagine your doctor calls and tells you today’s the day; you have 24 hours to live. What are your feelings as you confront your mortality? Will you ask yourself: What did I miss? Who do I miss? What did I not get to do?

These questions envision a world in which all your basic needs are met, allowing you to focus on what’s important. Each question attempts to whittle your priorities by limiting the time you have left. I encourage you to do this exercise with your spouse or a close friend. Then, spend some time thinking about your answers and exploring what’s truly important to you. The answers might be surprising.

Questions like these allow us to get to the core of what’s essential. With that in mind, we can shape the finances to support those endeavors rather than chasing “more money.” Money is necessary, but remember it is a means to an end. What’s your end goal? How you feel about your finances, and overall plan, is much more important than the balance on a statement. Money is emotional.

Returning to the new client I mentioned, we encouraged them to consider their circumstances, values, goals, and desire for simplification. Ultimately, they decided to sell the property and use the funds to invest in dividend-paying companies. This dramatically reduced their time investment from babysitting a large property to simply opening an envelope each month. The cash flow is liquid, easily reinvested, or deposited in their bank accounts when they need a little more money in the bank.

Could they have generated a larger return by keeping the property? Possibly. But their income was tied to a lease that was fixed, all while inflation ate away at their spending power, and property taxes and insurance costs continued to increase. This decision was a better fit for them and more closely aligned with their long-term goals and values. Now they have the time and freedom to invest in themselves and their available time together. That’s worth far more than anything that property could have ever provided. Personal finance is far more personal than it is finance.

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Barron's Top Financial Advisor and recognized as a Forbes Top Wealth Advisor in Colorado.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.