If what you want is 
Unique, following the herd
Won’t get it for you

Last week I wrote about clichés and the risk of being too customized in a financial plan. Age old clichés – “it’s not what you make, it’s what you keep,” “don’t put all your eggs in one basket,” “time is money” – have stuck around for a reason. They are generally true and may lead to positive outcomes if applied consistently over time.

But everyone is different. Financial plans must be customized from one person to the next.

One of my favorite concepts in finance is one developed by father/son duo Ted and Brad Klontz. Ted and his son Brad are both psychologists and have done interesting and pioneering work in describing and addressing how people relate to money.

Their idea is that people have “Money Scripts.” A money script is a story that you tell yourself based on experiences – often from childhood – that directly inform how you feel and behave around money.

Right now, people are growing up in homes where money hangs like the Sword of Damocles over all activities and decisions. The stress can be enough to destroy marriages and is a leading risk factor for suicide.

At the same time, other people are experiencing a life where money is an abundant resource that gets spent on big vacations, entertaining creature comforts, education, or charity without a second thought. These two extremes of the Money Script spectrum help illuminate how people exposed to different environments would have vastly different impressions not just about their own finances, but the whole financial system.

What kind of rate of return do you want out of your portfolio? Why might that be the case? How much money do you feel comfortable spending in relation to your net worth? How much money do you want to leave to the next generation? How much debt are you comfortable taking on? What kind of portfolio assets do you find interesting?

I’ve heard some interesting answers to that last question. People can be interested in – and tell you exactly why - everything from technology, real estate, commodities, and private equity (the usual suspects) to third world currencies, cryptocurrency-based multilevel marketing programs, and pet food.

These unique interests should be honored in a financial plan. There is likely a good reason that the interest exists and engaging that interest may help a person pay more mindful attention to their finances. The more mindful attention a person pays to any area in their life, the more they will study it, learn about it, and refine it.

The job of a financial plan is not always to course correct and steer someone away from decisions that can lead to harmful consequences like a big tax bill, taking on too much debt, or failing to have liquid funds available to endure an emergency.

The first and most important job of a financial plan is to be actionable. This means not only that the plan contains a series of understandable steps towards a goal, but that the person to whom the plan applies wants to act.

How can a plan inspire someone to go through the trouble of implementing it? By appealing to some aspect or aspects of that person’s money script. Everyone has a money script, but that doesn’t mean that everyone has a dysfunctional relationship with their money. One of the best ways to learn whether or not an idea is helpful or harmful is to put it to work and see what happens.

This is my favorite part of my work. When I design the first draft of a financial plan, the idea is not to create a fully formed vision of all the financial decisions a person will make over the rest of their lives. It is simply to understand what a person wants and take a step in that direction.

I recently botched a financial plan. I looked at the client’s age and life circumstances and applied a template based on other clients that I felt confident would produce a positive outcome over time. But…

It wasn’t what the client wanted. I had tilted the plan heavily towards income. The client wanted growth. There is absolutely nothing wrong with wanting more capital appreciation than dividends and interest. So, back to the drawing board.

Draft number 2 had some elements of draft number 1 but was otherwise a complete do-over. It aligned with the client’s money script more closely. By implementing the money script, we’ll be able to learn about it together. With time we’ll learn more about where the script works and where it is weak, and refine it accordingly.

Age old financial concepts will probably come into play. But so will the client’s unique interests and feelings. In fact, the more time is allowed for the plan to iterate and evolve, the more it should resemble a healthy, functional, money script.

Since no one on earth but you has ever experienced the world exactly as you have experienced it, how could your ideas not be unique? If the ideas you have about money are unique then your financial plan should be as well.

If you would like to discuss your unique ideas about money and how they can be implemented in a financial plan, well, that’s exactly what we do for a living. We’d love to learn more about you and whether we can put your ideas to work for you.