11 Steps To Financial Freedom – Step 1: Prioritize Your Goals

One of the reasons I started writing this personal finance blog was to hold myself accountable for my financial decisions.  It’s great to share some of my knowledge from previous experiences, but I think it’s even better to share my financial journey as it’s happening right now.

We just built a new house this summer, which was one of the financial goals we were saving for over the last few years.  Now it’s time to reset and figure out where we are going from here.

That’s why, when I read 11 Steps To Financial Freedom in the latest MoneySense magazine, I thought it would be interesting to go through each of these steps one-by-one and share my results on this blog.  So, each Wednesday for the next 11 weeks I will post 1 of the 11 steps to financial freedom, with the intention of creating a complete financial plan by the end of the series.

Talk To Your Spouse

According to the MoneySense article, most couples never really talk to each other about their financial goals.  You need to have a conversation with your spouse about goals, values and what kind of lifestyle you want.

This is somewhat true in our case; my wife and I rarely talk about money, other than for our day-to-day spending.  We find that when we do sit down to discuss a longer term financial plan, our goals are rarely aligned.

Action Step #1 – Prioritize Your Goals

Part of this series included 10 worksheets in the Money Financial Plan Kit.  For this step we used worksheet #1 – Prioritize Your Goals.  The worksheet consists of 14 financial goals, which you are supposed to rate from 1 to 5 in order of importance to you (1 being the lowest, 5 being the highest).  My wife and I each filled out the sheet separately and then compared results.  As you can imagine, there were some differences.  Let’s take a look:

Where We Agreed

  • Gaining control over my spending – we both rated this a 2 out of 5, which I think is a testament to how we currently manage our finances with a monthly budget and a spreadsheet that forecasts our income and expenses.
  • Saving for children’s education – we both rated this a 4 out of 5, and we obviously feel that providing assistance for our daughter’s post secondary education is an important financial goal.
  • Saving for retirement – we both rated this a 3 out of 5.  I would have rated this higher, but I feel that my defined benefit plan will provide us with a solid foundation for retirement, and anything else we can save will just be gravy.
  • Strategies for reducing income taxes – we both rated this a 2 out of 5.  Honestly, outside of the government making changes to allow taxes on household income rather than individual income, there’s not much more we can do here.
  • Providing a comfortable lifestyle for my family in the event of my death – we both rated this a 5 out of 5.  I’ll go into more detail later in the series about what we need to do to address this important goal.
  • Leaving a legacy/philanthropy – we both rated this a 3 out of 5, meaning that it’s important to us, but we probably aren’t there yet in terms of developing this goal.

Where We Disagreed

I won’t go into too much detail on the financial goals where we only differed by 1 point.  These 3 are listed below:

  • Maintaining my standard of living in retirement – I rated this a 5 and my wife rated this a 4.
  • Retiring early – I rated this a 5 and my wife rated this a 4 (although we both agreed upon the retirement age of 55).
  • Creating/preserving an estate for my heirs – I rated this a 3 and my wife rated this a 4.

Where We Really Disagreed

These are the areas where there was a gap of two points or more between our scores.  Of the 5 financial goals listed, I was only surprised about 1 of them:

  • Paying down mortgage or other debt – I rated this a 5 and my wife rated this a 3.  I guess she doesn’t want to pay off the mortgage as quickly as I do.
  • Developing income withdrawal strategies in retirement – I rated this a 5 and my wife rated this a 3.  Doesn’t she know that I’m going to split my income with her in retirement?
  • Understanding my investments – I rated this a 4 and my wife rated this a 1.  Enough said.
  • Knowing I have the right investment mix – I rated this a 4 and my wife rated this a 1.  Again, enough said.
  • Active involvement in managing my investments – I rated this a 5 and my wife rated this a 1.  This was our biggest gap in the entire worksheet and probably explains the gap in the previous two goals as well.

This was an interesting exercise to go through with my wife.  It looks like we have similar financial goals moving forward (which is good!), although it’s quite apparent who will be looking after the investments.  That’s fine with me, I take great interest in looking after our investment portfolio.  However I do think it’s important that my wife is aware of where and how we invest our money in case anything happens to me.

Next week we’ll figure out where we’re at with Step #2: Determine your net worth.


9 Responses to 11 Steps To Financial Freedom – Step 1: Prioritize Your Goals

  1. Jade says:

    Interesting post, thank you Echo.

  2. anna says:

    Speaking to your spouse about finances is not only smart, but it’s good for your relationship. Couples who talk about their finances (even if they don’t agree) puts everyone on the same page – no one partner gets all the stress (or the spoils). Financial problems are actually a leading cause of divorce – if you can share in the important decisions, you’ll have a much better marriage as a result.

    • Echo says:

      Hi Anna, I have read that statistic too. It’s unfortunate that money is such a taboo subject, but if you can’t talk about it with your spouse, who can you talk to?

  3. Nice post Echo!

    I like the idea of going with the MoneySense steps and creating a personal series out of it. I look forward to the Wednesday editions.

    My wife is comfortable with me making our investment decisions, but she is involved in the process. She too places a high importance on saving for our child’s education and saving for retirement.

    I think the more contested areas of disagreement are also the most important.

    In my view, paying off your mortgage is of paramount importance. With that being said, I have read about investors using mixed approaches (investing while paying down) such as yourself and MOA, and I can also see advantages of going that route as well.

    With regards to early retirement strategies, I think you touched on this with your post asking readers what to do with your RRPSs. If you plan on retiring earlier and before you can earn your defined pension benefits, RRSPs could be back on the table.

    Even though you may be limited in terms of reducing income taxes, placing importance on non-registered accounts can provide you options at effectively managing capital gains and losses, which can in turn, save you money during tax time. Feel free to check out my post Effectively Managing A Capital Loss.

    At any rate, I commend you for your active approach to your personal finances; you’re doing a great job at making your hard-earned dollars work for you and your family.

    Good stuff.
    TWC

    • Echo says:

      @TWC
      Thanks for the great comments! I’m glad someone thought this series was a good idea ;)

      When I read the article, it seemed like something I should address by creating my own financial plan. I liked the way it was laid out.

  4. Nice post. I too, like the blogpost idea/series.

    Sounds like it was an interesting exercise to go through with your wife indeed!

    I figure my wife and I will never be fully aligned, and that’s OK with both of us; having similar broad-goals are important though ;)

    I look forward to the rest of the series.

  5. Great post!

    It is really important to have your spouse on the same page when it comes to investing. I’ve seen portfolios go down hill when one partner wants to invest one way and another partner wants to do something totally different!

  6. Julie Gaudet says:

    A great exercise that you both went through, I plan on doing the same thing so that we get on the same page with our goals this year and stop playing things by ear.

  7. Ken Maynard says:

    Another great article on a great web resource. I think everyone would agree that goal setting and priority setting is paramount in reaching your financial objectives. And we all want to look forward to a bright future with our spouse and our children. And none of us want to think about the ugly possibility of a divorce. But it’s a reality for 50% of us today. What I can tell you is you may want to think about how to reach your goals with the least amount of financial entanglement with your spouse. With this in mind if a separation was to happen the division of assets can be cleaner and less costly.

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