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The 7 Habits of Highly Effective Financial Planning

A group of us in the office recently read (or re-read) Dr. Stephen Covey’s classic, “The 7 Habits of Highly Effective People”. If you have never read it, I strongly recommend it. Covey explores the effects of a principle-centered paradigm, changing ourselves from within first, and then the impact on our relationships with others.

As I finished the book, I started thinking about how applicable each Habit is to our financial planning profession. Just as Covey proposed that successful individuals apply each Habit, I would add that financial success also includes the same habits.

1. Be Proactive = Plan

In the very first habit, Covey concludes that “we are responsible for our own lives”. In other words, you are in charge of yourself. He states it another way saying, “Act, or be acted upon.”  Simply put, to be financially successful, your very first step must be to PLAN. Again, Covey notes “that there are some things over which we have no real control and others that we can do something about.” It is up to each individual to act on the things over which they have control.

Life is full of unexpected events – job loss, health issues, etc. You can be proactive and set aside an emergency fund. You can act to manage the risk associated with a premature death or disability event.

Life is also full of goals and dreams – travel, funding college for your children, and more. Are you taking the steps to work towards those goals and dreams? Have you thought about it? Consider the 2nd Habit.

2. Begin with the End in Mind = Set Your Goals

Covey notes the second habit deals with leadership – “What are the things I want to accomplish?” It is important for you to define what financial success looks like to YOU. Envision your retirement. What are you doing? Where are you going? How are you spending your time?  Think about other scenarios. What would you like to have happen if you died prematurely?  Would you like to assist with education expenses for your children, or grandchildren?

Lewis Carroll once said, “If you don’t know where you are going, any road will get you there.”  Once you know your destination, then you can work to apply Habit #3.

3. Put First Things First = Implement

While the 2nd habit is about leadership, Covey states the 3rd habit is about management – “How can I best accomplish certain things?” Recognizing the need to act, and having a vision of financial success, you must now work towards achieving those goals. This includes setting priorities among your financial goals, when needed. A financial plan is worth nothing if you do not take the recommended steps to achieve your objectives.

4. Think Win / Win = Look for the CFP® Certification Mark

 Covey’s fourth habit begins to enter the realm of relationships with others and “seeks mutual benefit in all human interactions.” When seeking an advisor, look for someone with the CERTIFIED FINANCIAL PLANNER™ certification. A CFP® professional is required to act in your best interest at all times, displaying integrity, competence, and diligence, among other qualities.  Character is at the heart of Covey’s fourth habit, a trait fully embraced by CFP® practitioners.

5. Seek First to Understand, Then Be Understood = Diagnose, then Prescribe

As you work with others towards achieving your financial goals, ensure you have the right diagnosis before you fill the prescription. Similar to Habit #2, it is important to understand the problem before implementing a solution. When I go to my doctor and tell him or her that I am sick, he or she will start asking questions and running tests to understand what my needs are prior to recommending a treatment. Whether it is your investment portfolio, insurance policies, or estate planning documents, all should be implemented and executed with your specific needs, goals, and challenges in mind.

6. Synergize = Coordinate with a Team

 The 6th habit of Covey’s book emphasizes synergy, or “to value differences – to respect them, to build on strengths, to compensate for weaknesses.” Financial success requires strong collaboration, a team approach. The advantages of your financial advisor, accountant, attorney, and others all working together for your benefit cannot be overlooked. Each has unique strengths, and together, as Dr. Covey says, “The whole is greater than the sum of its parts.”

7. Sharpen the Saw = Revisit Your Plan

Planning for your financial success is not a one-time event. Just as personal growth and improvement requires continuous attention, you should review your financial plan at least annually and make adjustments as needed. Ask questions, such as, “Am I on track to meet my goals?” “Has anything changed to alter the course?” Consider beginning on a long journey towards a particular destination. It is better to quickly recognize a wrong turn and correct your course, than realizing the error much further down the road.

The first three habits are “inward” focused. Only you can decide to plan for your financial future and act on it. The second three habits are “outward” focused, understanding your financial success often includes relationships with others. And the last habit acts as a marker to ensure you are ultimately successful.  You can start implementing these habits now. As Benjamin Franklin once said, “Don’t put off until tomorrow what you can do today.”

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