Statement Of Financial Purpose
Some of you probably know that my wife Sharon and I could be lovingly referred to as theatre nerds. For some, a trip to the Outer Banks or Disney is their vacation of choice. For us, you will often find us on our way to New York City, trying to cram as many shows and performances as we can into a long weekend. We made another pilgrimage in May, seeing eight shows or musicals in four days. I find the spectacle of the performance and the way actors bring the words from the script to the stage to be an incredible experience. Great theatre also asks good questions and/or reflects something about your life back at you.
One of the first shows Sharon and I saw together was not a highbrow piece of theatre at all, but instead the crass and off-color musical, Avenue Q. While this wouldn’t necessarily scream, “This is a play that is going to make you think,” the number Purpose (note: this song in particular isn’t bad but if you search any others, they may trip your work’s content filters) has some redeeming qualities that actually do relate to how we think about setting goals and creating a plan. The main character in the show, Princeton, is a listless, recent college graduate (with a Bachelor's in English) who spends the entire show trying to figure out what he should do with his life. He makes some suboptimal decisions because he doesn’t really know what he’s “supposed” to be doing.
For clients who have never had a financial plan or worked with an advisor before, we can draw easy parallels to Princeton. Many have fallen into a certain savings strategy or investment portfolio, but they don’t necessarily know the “why” behind pursuing any of these strategies. They may have a semblance of what is “supposed” to happen but lack clarity on the actual end goal or the steps to get there.
When we start working with a new client, after we assess their assets, liabilities, and spending, we take a break from the numbers and focus on creating a Statement of Financial Purpose (SoFP). This statement is a clear and concise declaration of your overarching financial goals and values. It’s not just about numbers and targets; it’s about articulating why you want to build wealth, how you envision using those resources, and what role your finances will play in your overall life purpose. This simple sentence sets the tone for the financial plan and provides a touchstone for making important financial decisions.
Once the purpose statement is established, we then move to a level lower on the ladder and focus on creating actionable and measurable goals. These goals bring the statement to life and ensure that your financial plan isn’t too narrowly focused on one topic, such as retirement, or too broad and without focus. The interaction between these goals and the Statement of Financial Purpose is critical. If your goals do not align with your purpose statement, or vice versa, there needs to be an adjustment to either the goal or the statement to ensure you’re headed down the right path.
Your SoFP is a living, breathing statement that will change and grow with you as your finances evolve. A purpose statement created in your mid-thirties will likely be very different from one created pre-retirement in your 50s. We like to revisit this statement on a semi-regular basis to ensure that the SoFP and financial goals still align with your overarching life goals.
Being listless in your mid-twenties, like Princeton, is something most people can relate to. As you gain more life experience, your purpose begins to become clearer, but if you don’t put deliberate thought into defining your purpose and goals, you run the risk of missing out on opportunities and not living life to its fullest. As mentioned in the aforementioned song, “Purpose, it keeps you going strong like a car with a full tank of gas.” Working on your Statement of Financial Purpose and its relation to your goals may help you find that purpose so you’re not wandering about the 'stage' of life, trying to figure out exactly what you’re supposed to do.
