Getting Started? Focus on Purpose, Not Products

I’m often asked, “How do I begin to get my financial affairs in order?”

That’s a great question. The task can be daunting. Do you begin with gatartehering documents? Do you start reviewing your investment portfolio? Or do you start reading Money magazine and hope that you’ll be able to solve this seemingly complex problem?

I suggest that you forget about all of that stuff … for now. Honestly, it just isn’t as important as the more meaningful discussions you should have about your finances. Let me explain.

The problem I see with most physicians -- and most financial advisors -- is that they focus on the products too much and not on the purpose those products are serving. It’s like focusing on the proverbial trees and missing the forest.

So before you pick the next stock, or buy the next annuity, or hire a financial advisor, you need to define your goals. Setting goals will dictate the financial products you buy and the investments you make. In other words financial products are simply tools to get you to your goals. They are means to an end.

For example, when you see a patient in your office or at the hospital, you take a history and physical, formulate a differential diagnosis, and then come up with a treatment plan. But the ultimate goal is to make the patient better. Our focus as physicians is ultimately to improve the lives of our patients, and the prescriptions we write or the procedures we do are tools we use to achieve that ultimate goal.

That’s what you and, eventually, your advisor should be doing in your financial life -- focusing on your goals and using appropriate tools (investments, insurance, etc.) to help you achieve those goals.

What do I mean by goals?

Your first thought may be retirement, but “retirement” is a really vague concept. What does retirement mean to you? Does it mean lying on the beach doing nothing, or switching careers to do something you’re passionate about outside of medicine? Or perhaps is to continue practicing medicine, but on a part-time basis so you can travel the world.

Start getting your financial house in order by listing all of your goals and ranking them by priority. Define those goals as precisely as you can. For example, “I want to retire” is not a goal. “I want to retire at age 63 with enough money so I can spend $10,000 per month in today’s dollars in order to travel” -- now that’s a clearly defined goal.

Once you have a list of your precisely defined goals, then can you start thinking about the tools you need to get there. Your entire financial life should revolve around your financial and nonfinancial goals not investment and financial products.

This week's financial prescription: Focus on purpose, not products.