Financial planning is less about knowing what to do and more about doing what we know. Sure, there are a myriad of complexities littered throughout the wealth management universe deserving our deliberation and calibration, but I’d be willing to bet that you are already aware of the following list of financial planning “shoulds,” right?
You should…
- Get a will done.
- Insure catastrophic risks.
- Spend less than you make.
- Build a cash emergency reserve.
- Eliminate high-interest credit card debt.
- Save at least 10% of your income for the future.
- Take advantage of your company’s 401(k) match.
- Develop an investment portfolio strategy and stick with it.
While checking all the above boxes doesn’t guarantee your financial success, the chances are extremely good that you’d be in pretty good shape. So, why is it that we don’t do what we know we should?
The simple answer is that we rarely act until the pain (perceived or real) of not doing something feels greater than the pain of doing it. Each of the above has a pretty significant cost associated with it, but let’s take a look at one—arguably, the most important one—and examine the pain associated with estate planning.
Estate planning requires us to call an attorney’s office, gasp at their hourly rate, schedule a time to meet, translate our family values into the foreign language of legalese, make seemingly impossible decisions (like who should parent our kids if we’re gone), follow up on retitling assets and updating beneficiaries, and the biggest reason: facing the prospect of our own demise. There is a lot of pain, perceived and real, associated with getting your will done, and that is surely why roughly 3/4 of people haven’t.
So, what’s the pain of not getting a will done? That’s a little tricky because it’s all perceived pain that we’re dealing with here, and it’s really not even your pain—because you’re gone. You have to imagine your family fighting over where your assets should go and a largely disinterested court making the ultimate determinations—including who should take care of your minor children when you’re gone! And then there’s that dull-but-nagging reminder that you know you’re supposed to get estate planning documents done and haven’t. You feel like a deadbeat and irresponsible adult.
Do you see the problem here? Yes, the potential damage done by dying intestate (without estate planning documents) is huge, but mostly imaginary and, hopefully, well into the future, whereas the pain of doing estate planning documents today is very real and quite substantial.
How, then, can we do a better job of gauging the impact of imagined pain—and the imagined lack of pain, let’s call it joy—that we’d derive from checking any of these important financial boxes? Let’s look at it through the lens of Alex Hormozi’s “Value Equation.” He’s presenting this as much as a tool for the marketers of products and services to gauge, but I think it perfectly explains where and how we can reach a tipping point in financial decision-making:
The Value Equation
On the top part of the equation, Hormozi illustrates the joy of, for the sake of our argument, doing (or updating) your estate planning documents. On the bottom, we have the pain of checking this massive financial planning box. Let’s first consider the bottom.
The time delay on the benefits of estate planning is—hopefully—substantial. Again, you’ll never actually feel this pain because you’ll be gone, but even your family’s pain is something that would likely occur well in the future, minimizing its perceived impact on us today. The time delay here is a whopper. The effort and sacrifice, as we noted above, is also quite substantial. So, what about the joy—the top part of this equation?
What is the dream outcome of seriously deliberating over your estate planning and activating this element of wealth management? You can imagine freeing your family from financial concerns so that they can properly grieve your loss. You can imagine bringing these documents, most often connected with death, to life by weaving what you hope to be your legacy into otherwise drab estate speak. You can surprise and delight your heirs and the causes most important to you through the creative disposition of your assets. You can derive meaningful satisfaction simply from knowing the pain your heirs will not have to face because you were willing to face the pain yourself. You can exercise control beyond the grave, extending your stewardship for years after you’re gone. And most surprisingly, you might find, as I have, that discussions about your death—how you hope to be remembered and the mark you’d like to leave—can be surprisingly life-giving. It’s not hyperbole to suggest that if you really dig into this task, it could increase your level of gratitude, improve your relationship with loved ones, and give you a renewed perspective on life. Today.
As for the perceived likelihood of achievement, while you will never have complete control over precisely how your heirs respond to your estate plans, when you’ve consulted with a skilled estate planning attorney and made conscious appointments for vital estate planning roles (like personal representative, guardian, and trustee), the likelihood of your instructions being carried out by the state are quite high. And you can go one step further and have a family meeting (great financial planners have a process for this) to communicate the depth of meaning behind your estate plans and help ensure that your family understands and appreciates your wishes.
What’s the bottom line? Get a will done? Well, yeah, but more than that:
We can increase the probability of doing what we know is important when we make the unconscious conscious—by examining the pain ratio and the tipping point that will move us to action. Through the utilization of our imagination, we can more clearly see the value—or lack thereof—of various financial planning to-dos and improve our financial decision-making.
Bonus Read: Daniel Kahneman has done more to help us understand the behavioral economics behind the power of pain and joy than anyone on the planet. He passed away recently, so I wrote a piece on 3 Ways The Late Daniel Kahneman Has Improved Your Life (Whether You Know It Or Not).