There’s a movement toward redefining money: instead of accumulating money for what it can buy, more of us want to use money to live the best life possible with what we have––a concept known as Return on Life™ (ROL).
With ROL, money becomes a tool to help you live the life you want -- we call it an “optimal life”. Accumulating as much wealth as possible is no longer the primary objective of your financial plan.
The traditional path to saving and investing puts the focus on some indefinite point in the future (retirement), and relies solely on numbers and return on investment (ROI) to evaluate success. However, this approach is misleading because it doesn’t consider individual circumstances, namely, the priorities most important to you. And why are we concerned about our money, anyway, unless we are using it to help us fulfill goals that are truly important to us?
That’s why “Beating the market” is an artificial objective, because it is not likely to have a substantive impact on your unique situation. Consider this: what does beating the market by one percent less (or more) mean to how you live your life? Do market returns have a meaningful impact on how you live your life?
What is relevant is contemplating the highest priorities of your life, what we call your “heart's core”, and then creating a life plan, or map, that will set you on a journey to achieve those most important goals..
There are several, proven exercises to help uncover our fundamental values and motivations, and this process is essential if you want to shift the focus of your financial planning from how much money you need to, instead, how your money can fulfill your needs.
Once you’ve committed to discovering your heart’s core, your map and the route you take should consider the following:
- How much do you currently have invested?
- What is your current cash flow?
- What transitions are you currently experiencing, or expect to experience (examples include paying down debt, divorce, concern about illness, job loss, retirement, purchasing a home, providing financial assistance to a family member)?
- Do I feel comfortable with my level of financial obligations (examples include housing expenses, leisure activities, and healthcare expenses)?
By incorporating these factors into your planning, your financial planner (or financial life guide, as we refer to ourselves) can begin to understand what needs to change (or not change) in order to live your optimal life without overextending yourself. You may even be pleasantly surprised to learn you can enjoy the fruits of your labors sooner than expected!
Here’s the bottom line, as far as we’re concerned: money does not exist for its own sake. Money exists as a utility that we use to improve our lives.
How your returns compare to any index, fund, investment category, or another person are less consequential than whether you are meeting your own goals for your return on life. Measure your success against your objectives, not someone else’s. You don’t need to keep up with the Jones’—or anyone else.
To this point, I’m reminded of a parable I’ve read many times, told in various voices but always with the same message. Here’s one version:
An investment banker was at the pier of a small coastal village near his hotel, when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The financier complimented the fisherman on the quality of his fish and asked how long it took to catch them.
The fisherman replied, “A few hours." The banker then asked, “You caught these in only a few hours? Why didn’t he stay out longer and catch more fish?”
The fisherman replied politely, “I have enough here to support my family for a few days, already.” The banker, intensely curious, then asked, “But what do you do with the rest of your time?”
The fisherman replied easily, “I sleep late, fish a little, play with my children, take long walks with my wife where we stroll into the village each evening and sip wine, play guitar and dance with our friends. I have a full and busy life.”
The banker scoffed, “You only think your life is full. Listen, I’m a Harvard MBA. Let me help you. First, you should spend more time fishing, sell the ones you don’t need for your family and with the proceeds, buy a bigger boat. Then, with the bigger boat you can fish more, sell more and then buy several more boats.
Eventually you would have a fleet of fishing boats. With that much product, you could start selling your catch directly to the processor and cut out the middleman. One day you’ll have enough money to open your own cannery and you would control everything -- the product, processing, and distribution. You’d be so successful, you could leave this small village and move to the city, where you will run your expanding enterprise.”
The fisherman smiled politely, and asked, “And how long will this all take?”
The banker pursed his lips dramatically and replied, “Oh, only about 15 – 20 years.”
Still smiling, the fisherman pushed back the brim of his hat and shifted in his boat. What then?” he asked.
The banker laughed and said, “That’s the best part. When the time is right, you would announce an IPO and sell your company stock to the public and become very rich, you’ll be a millionaire!”
“A millionaire!” The fisherman whistled, smiling as ever. “What then?”
The banker smiled back and said, “Then you would retire. You’d sell your company and be able to realize your dream -- move to a small coastal village where you would sleep late, fish a little, play with your grandkids, take long walks with your wife strolling to the village in the evenings where you’d sip wine, play your guitar and dance with your friends.”
-- No matter which version we read, we get the point.
With ROL, we don’t give up the best of life or the best parts of ourselves just to get money. The money is there to serve us, not vice versa. Instead of focusing on someone else’s definition of success, we write our own. ROL puts quality before quantity by managing assets in a way that improves our lives and provides peace of mind.
In traditional financial planning, the primary components include asset, risk, and debt management, as well as tax, estate, and income planning. All of these areas are essential and necessary for a strong financial plan, but there is more to developing a strong financial plan than numbers.
We all have different values and principles regarding money. Each of us has a history, present circumstances, and future hopes that are unique. By focusing only on numbers, we miss enjoying life now and in the future because we only concentrate on accumulating wealth. Financial Planning designed with the return on life principle as its foundation becomes Life Planning. It is designed to build a sense of freedom and control over your finances, relieve the stress of accumulating wealth and give you a trail map to help you make the decisions to keep you on course -- or choose a different one!