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Real Wealth – How To Make Smart Money Choices For What Matters Most To YOU

What's Important to You?

We are social beings, and our identities are inextricably linked with others: I am Joe's son, I am Sally's mother, and he is a friend of mine. I grew up in Olivia, Minnesota, population about 2,500. I knew everyone, everyone knew me-and my family history-and I knew theirs. This is why I feel personal connections acutely.

I have learned that almost everyone, from any environment or culture, privately if not publicly, describes themselves by their relation­ships to other people-those with whom they laugh and cry, work and study, play and worship. We dream with others. We hope with others. We mourn with others. We are nurtured, protected, and defended by grandparents, parents, siblings, spouses, children, and friends, and in turn we nurture, protect, and defend them. Our eyes mist up, our throats tighten, sometimes tears flow just on seeing an image of others-even unknown others-in pain or sorrow.

What's really important in our life? Spending time with our families and people we care about most. I am not a doctor, pastor, or counselor to whom people reveal their souls or their secrets. But I am a financial advisor, so I hear people's hopes and dreams. And with very few exceptions, people talk about the people they love and the relation­ships they hold most dear. Their future, the life they wish to live, is always full of the people most important to them. They don't talk first about dollars and cents, the Dow Jones average, or bond yields. They talk about a spouse or partner, a best friend, a child, or a parent, organi­zations they're involved in and causes they believe in. People focus on others when imagining their financial futures; employees, friends, faith communities, and charities all have been the focus of planning efforts with my clients. My work has taught me a simple truth: Relationships are the single greatest influence on how we use our wealth and that's why I wrote my second book, Money and the People You Love. We do not live our financial lives in a vacuum. We live and plan with and for others. The two are inseparable.

Knowing Yourself, Your Values

Yes, relationships are of paramount importance. But perhaps even more important is knowing yourself and your own core values. Sometimes identifying and communicating your values can be difficult, even scary. But when you do it, it really puts things in perspective. When you sit down and think about what matters most to you and why-things like loyalty or honesty or spirituality or family or adventure-and then use those values to make financial decisions, it makes a difference; it truly brings your life and your wealth together. If I help one person or one couple or one family base their financial planning on their values and their relationships, then the effort of the exercise is worth it.

Your financial journey should be based on your personal values and when it is, you'll find yourself making better decisions about your money-for you and the ones you love. You'll find that when you know your values, you won't be motivated by greed or fear. You'll find that when markets are volatile or do the unexpected, it's easy to stick with your plan because you've made financial decisions based on your values.

When you think about the five things you can do with your money (spend it; save it; invest it; pay taxes with it; leave a legacy-you'll read about all of these later), your decisions about each of those should be guided by your values. A values-based approach to money gives you a foundation in an ever-changing world and it is especially helpful for those who have difficulties making sound financial decisions.

I find over and over again that when I help people understand what matters, why it matters, and what financial decisions mean to their lives, it creates a common frame of reference. And from there, a financial plan that is driven by clarity about values and the resulting goals comes together. And there is a solid foundation-a rock to cling to-when you (and even the smartest investors do this) stop thinking objectively and instead react emotionally. If all of this sounds complicated, it isn't. Think of it as an X-ray of your soul.

Here's an example based on a real couple I work with:

Dave and Carol shared their top two values: family and education for their three children. But as they made more money and their financial situation improved, they confessed to me their desire for a particular luxury car that would double their monthly car payment from $400 to $800. They wanted to know if they could afford it.

We did a cash-flow analysis and determined that, with their new higher income, they could indeed afford the luxury car at $800 a month. And I told them so. But I also reminded them of their values, the importance to them of education for their children, and their love for their family. So I asked them, "Are you sure you want an extra $400 a month to go to a car payment, or would you prefer to have $400 a month go to funding educational accounts for your three children?" Ten seconds of stunned silence later, they agreed with me and decided to stick with their original $400 per month car payment. And then, within the next month, they started systematically contributing $400 a month to education accounts for their children.

Could they afford the luxury car? The answer was yes, but by using a values-based approach, I could remind them of what they already knew: their children's education was far more important. Fast-forward this story three years. Their income continued to go up, and together we determined they had the economic wherewithal to get that luxury car and still continue to fund educational accounts and retirement plans. They could afford both. And they're still happy, grateful, satisfied clients as of this writing in 2012. The bottom line is not that their financial advisor told them what to do; it's that their values gave them a solid, objective standard by which to make decisions. My job was to remind them what was important to them.

For the record, the top five values that I strive to live by are:

1. Family

2. Meaningful work

3. Integrity

4. Loyalty

5. Health

Wall Street, Main Street, and the Great Recession

Having a values-based approach has taken on even more impor­tance since the 21st Century Great Recession, when the historic solidity of the financial world disappeared. Almost every belief about money has been called into question over the past few years.

The importance of saving? Unemployment at a level and duration not seen since the 1930s consumed the savings of tens of millions of people who used their retirement money, college money, and vacation money to eat and pay the rent. The importance of investing? Money invested in equities in 2001 was still worth the same amount in 2011. Rewards for hard work? The real wages of most workers declined between 2001 and 2011. Belief in the strength and honesty of banks, Wall Street, and insurance companies? Their greed and incompetence caused the financial crisis. Belief that government would protect the economy and the financial system? It didn't. Belief that owning a home is always a good investment? It isn't.

I could go on, but I'm only telling you what you already know. The financial world, and people's beliefs about it, continues to shift as I write. Everyone, from the biggest international banks, to politicians, to ordinary people like you and me, is redefining their beliefs about money, its role in their lives, and their faith in the financial institu­tions that manage, protect, and grow money. That's why asking, "What's important to me?" to determine your core values is a necessary first step to creating a financial plan. It's the only way to get to a solid foundation for your financial decisions, one that won't shift.

We're living in a new economy that is constantly forming and re-forming around us, with few experts agreeing on the next steps. Greed and stupidity seem to be stronger than our collective memory, stronger even than our new government regulations designed specifi­cally to hold them in check.

Where do you turn? What's still solid in the shifting financial landscape? How do you make a plan that is based on what is most important to you? That's why I've updated this book. When I wrote Money and the People You Love in 2006, I didn't answer those questions because no one was asking them. Now everyone is. Welcome to Real Wealth.

I encourage you to take this book to heart and use it like a friend as you live your life. I believe you'll be more fulfilled as you focus on whatever is most important to you.