Mirror, Mirror, On The Wall: 4 Steps To Financial Self-Assessment

4 steps to financial self assessment

4 steps to financial self assessment

If life were only as simple and fun as a BuzzFeed quiz, we’d be awarding ourselves with lavish titles of “hero”, “artist” or “divine spirit”. But alas, self-assessment, when it comes to your personal finances, acumen can be deeply challenging. We tend to believe we are champions of knowledge and experience, but the reality might lead us to disappointment. Remember, your beliefs inform your attitude and your attitude informs your decisions. In other words, what you believe becomes your reality; sometimes in direct opposition to reality.

Personal financial planning not only deals with where you allocate your 401(k) plan, but spans areas like cash flow management, risk management (more than just investment risk), college cost planning, retirement planning, investment planning, tax planning, estate planning, social security and health care planning. All areas that determine your future.

Let’s examine 4 topics that might provide you with a basis for self-knowledge and a platform to make choices that really work to better your life.

  1. Your beliefs: If you flip a coin, and during the first 7 flips the coin lands on heads each time, do you believe the next time the coin will come up tails? If you believe that, you are asserting that the coin has decision-making ability and will try to equalize the binary nature of coin flips, and subsequently, will want to come up tails. After 7 heads in a row, it has to land on tails, right? Of course, we are aware that the coin has no ability or even desire to land on a certain side. When it comes to your attitude towards money and issues of financial concern, consider what you believe and whether those beliefs are grounded in objective information or if they’re tinged by bias. Think about areas like buying a stock: You believe the stock price will rise—but what you might not consider is that you are buying the stock from someone who decided that it was time to sell. What knowledge did they have that you lack?
  2. Acknowledging lack of knowledge and experience: I don’t know about you, but if my furnace breaks, my hand is reaching for the phone—not a wrench. The same holds true when it comes to my health. While WebMD contains a lot of information, I am confident that I can get better answers from my physician. Somehow, when it comes to financial issues, men (especially) seem to feel that they are, by genetic disposition, able to handle what can be extremely complex, and contain far reaching consequences. When it comes to making money decisions, are you more or less likely to ask for help or rely on your feelings of what you believe is correct?
  3. Frequency of review: How often do you review, or believe that reviewing all your financial matters is necessary and important? If you believe that financial planning is a “set it and forget it” check box, or that items only need to be revisited when there is an occurrence like a recession or change in employment status, marital change, death or a noteworthy event, you might be surprised that a reactive stature when it comes to your financial plan can place you in a very problematic position.
  4. Change-ability: Even for the most self-aware, change can be difficult. Consider the last significant change you’ve experienced and what process you endured to create a successful change. Whether it’s a change in job, housing, health insurance carrier or CPA, there’s typically a level of pain in starting afresh. Shifting strategies, even something as seemingly simple as cutting discretionary spending, can be rife with pain. Consider how well you navigate change and how you’ve been successful in the past. Use this knowledge to better your financial path for the future.

Your ability to successfully meet the challenges of your complex life are best supported by having a clear understanding of your knowledge, beliefs, biases, and ability to insert objectivity into your preset thinking. Move away from biases and towards objectivity. Take some time to really consider these four items and where you stand. The security and the well-being of you and your family depend on it.