3 Principles of Financial Confidence by Doug Kinsey, CFP®, CIMA®

3 Principles of Financial Confidence From the Financial Advisors at Artifex Financial Group

01 Why your relationship with money is so important. When we think about financial advisors, many of us tend to imagine professionals who can help us manage our money. So, right now you’re probably expecting a collection of tips on spending, saving, investing – or some other financial planning basics. After all, conventional financial planning typically starts with standard questions about your finances. You’ll usually be asked about your assets and liabilities, the balances in your retirement accounts, and the return on your investments. All fine questions, but they’re about numbers, and little else.

The financial planners at Artifex Financial would like to introduce you to a new approach to financial planning and guidance. One that’s: More human More personal Backed by over 150 years of expertise So what does that mean? It means we want to go beyond simple number crunching to help you understand the way you think and feel about money. It puts the emphasis on you and your personal financial life.

INT RODUCTION

Sure, numbers and figures are important when we talk about money. But the fact is, financial security is about more than accumulating assets. After all, you could be materially comfortable but still feel financially insecure. Being aware of how you think and feel about money and how you make financial decisions is equally important. Focusing solely on numbers could miss other essential aspects of a healthy financial life – including clarity, confidence, and having control over your financial decisions. These personal, subjective questions can often be neglected in the financial planning discussion. But they’re essential to helping you gain confidence about your financial decisions, and take control of your financial life. This human approach to financial planning and guidance is what we believe sets our personal financial advisors apart.

What we mean by a personalized approach is really getting to know you before we get to know your money. We want to understand what money means to you, as well as the emotions and biases that may come into play when you’re facing a big financial decision.

INT RODUCTION

How you decide what to do with your money may be just as important as what you actually do with it. And yet, almost no one ever talks to us about the process of financial decision-making. Or why a good decision-making process can help us achieve financial freedom. Working with so many clients year after year has taught us a lot about how people approach money. So we’re sharing this guide in the hope that it will help inspire greater confidence when you’re making financial decisions. This guide isn’t meant to provide all the answers, nor can it guarantee financial success. But it can help you to understand yourself better and empower you to make more confident decisions in your journey towards financial freedom.

Let’s do this together.

04 Principle 1 Your emotions and biases affect the major decisions you make. Knowing your biases could help to give you more control. Emotions can make it difficult to make sound, rational decisions. Allowing overconfidence or panic to guide our decision-making can lead to negative financial outcomes, losing money, or missing out on opportunities. How we make decisions can affect our quality of life and poor decision-making can lead to negative outcomes. So if we want to improve our financial life, we have to minimize poor decisions by learning how to make good decisions. A first step to improving our decision-making is to recognize how our emotions or biases can cloud our judgment and objectivity without us even being aware of it.

PRINCI PLE 1

Lacking objective clarity can lead us to make poor decisions, which can lead to poor outcomes. So what can we do to increase clarity in our financial life? We have to understand the personal biases we bring to the table whenever we make a decision (financial or otherwise). Our biases, for instance, can be rooted in how we think about money and what money means to each of us. Depending on who we are and what has shaped us – our personal history, upbringing, and life experiences – we will have a bias toward using money in one of three ways. And when we approach a financial decision, one tends to dominate as our primary focus. We call this primary focus your MoneyMind®, which can influence how you make financial decisions. Let’s take a look at a brief description of each.

People typically use money to accomplish one of three things: Avoid pain Protecting against what you fear might cause pain the future.

Feel good Affording those things in life that provide happiness and satisfaction.

Take care of others Meeting obligations to family, community, or society at large.

PRINCI PLE 1

Knowing your dominant MoneyMind. Recognizing and understanding the emotions or biases that drive how you think and feel about money can help you to make clearer, more rational decisions about your finances.

Commitment An individual with a Commitment MoneyMind is focused on caring for the people or causes they love. Their primary quest is to find ways they can serve others and help. No matter how much they’ve saved, their income level, or the opportunities presented to them, they find there’s always more they can give to those they care about most.

Happiness Those with a Happiness MoneyMind are driven by a desire to enjoy what their money can provide. Although their primary quest is satisfaction, they regularly feel they never have enough money or time. No matter how much they’ve saved, their income level, or the opportunities presented to them, there’s always something more they’d like to do or enjoy. The thought of saving for the next big thing frequently leaves them feeling frustrated and impatient.

Protection People with a Protection MoneyMind are typically driven by a quest for security and peace of mind. Unfortunately, regardless of the amount of success they attain, they rarely ever feel secure or satisfied. Because no matter how much they’ve saved, their income level, or the opportunities presented to them, they always think in terms of what could go wrong and how to avoid future financial pain.

This self-awareness, in turn, could improve our chances of making more balanced, objective decisions, helping us get closer to living our best financial life. Find Your MoneyMind

PRINCI PLE 1

We can’t eliminate emotions for the sake of trying to avoid financial mistakes. Emotions will influence our decisions to some degree, and mistakes happen despite our best efforts. Hey, we’re only human! However, when you acknowledge the pull of emotions, you may avoid being blindsided by them the next time you make a big financial decision.

Consider these five questions to help you dig deeper and perhaps help start a conversation with a trusted friend or family member. 1

What is your dominant MoneyMind?

Do you have a clear way of assessing your emotions when you’re making a decision? If so, can you think of a few examples?

Are you overly concerned about the fear of losing money or fear of missing opportunities?

Do you have mechanisms in place to help you stop yourself from making decisions based on your emotions or biases?

Can you identify situations in the past in which your MoneyMind drove financial decisions? How would you change those decisions, knowing what you know today?

When we’re aware of our emotions, we can start to learn how to resist being driven by them when money is involved.

08 Principle 2 When we accept that there are things we cannot control, we can start to make better decisions. Things outside our control are simply distractions. There are many issues competing for our attention every day. Even if you’re a top-notch multitasker, you’re only human. So your time, energy, and resources are limited. Dwelling on things we cannot change could lead to poor decisions or inaction. (Inaction can sometimes negatively impact our financial life just as much as poor decisions.) That’s one reason why making good decisions can be so difficult at times: We simply don’t know what to focus on because we may be distracted by – or agonizing over – matters we can’t control.

PRINCI PLE 2

We cannot control uncertainty. But we can control our response. When it comes to finances, there are countless factors that are out of our control: the economy, tax laws, inflation, interest rates, the stock market, and more. Yet all of them, when pulled in one direction or the other, can affect our financial well-being. That’s why it can keep us up at night when the economy or the market takes a stomachchurning turn. In uncertain financial times, it’s easy to allow things outside of our control to monopolize our attention, energy, and time. But this just distracts us from focusing on what we can control: our response to the uncertainty.

We must learn to control what is within our control.

PRINCI PLE 2

We can be paralyzed. Or we can act on what we can control. Allowing ourselves to be overwhelmed by things outside our control can lead us to avoid making any decision at all. And sometimes no decision is the same as a bad decision. So first we need to determine what we can control.

Here are five questions to help you get better at taking charge of the things you can control:

These are four things in our financial life we can control: Spending Saving Timing of certain life events

What are some things in life that you can or cannot control?

Do you tend to dwell on the things that are outside of your control?

How do you typically respond when faced with tough financial decisions?

Can you identify situations in the past where you failed to take action, leading you to miss out on opportunities or even lose money?

What changes in your spending, saving, timing, or risk tolerance would you like to make today to help put you in a better financial position in the future?

(retirement, major purchases etc.)

Tolerance for risk We can all agree the timing and duration of recessions, for instance, are out of our control. But rather than letting ourselves be overwhelmed by “whatif” scenarios, we could respond to the economic uncertainty caused by the recession. This might mean reducing spending or boosting savings. Or if you’re nearing retirement, you might consider putting it off for a year or two. Knowing that we have the power to respond to uncertainty can help us remain calm whenever we have to make a major financial decision and stay on track towards our goals.

11 Principle 3 Life is filled with tough choices that often make trade-offs necessary. Being able to evaluate trade-offs and choose rationally among them demands a clear process for decision-making. Our ability to dream big and aim high has led many people to inspiring success. And, in an ideal world, we’d all have unlimited time and money to achieve everything we want. In reality, our personal resources are limited. And they can rise or fall depending on circumstances. That means we often have to make trade-offs. Being willing to modify our goals as necessary and having a clear, systematic process to think through our decisions are key to helping improve our financial satisfaction and achieving financial control.

PRINCI PLE 3

What we have and what we wish we had to achieve our goals are rarely in sync. It’s been said life is a series of trade-offs, and there’s a lot of truth in that. The imbalance between what we have and what we think we need often forces us to make hard choices. Life is full of choices. In order to make the decisions that can help you realize financial success, it’s important first to figure out your priorities – that is, what matters most to you. Knowing your priorities can help you to understand what you’re willing to give up in the short-term in order to achieve long-term goals. Put another way, priorities help inform your decision-making. For instance, if early retirement is a priority, you may have to forego certain luxuries today in order to save as aggressively as you can to retire when you want.

Being satisfied with your financial life requires a clear way to make timely trade-offs. Avoiding or delaying tough decisions can lead to financial pressure and stress.

PRINCI PLE 3

A solid decision-making process can help lead to more rational decisions. Regardless of the financial question you’re facing (e.g., Should I take this vacation? Should I go back to school?), the measurement of success should always be the same: Did you make an informed, objective decision that will help maximize your life?

Making smarter decisions won’t be effortless but it can be made simpler, if it includes: Complete information As comprehensive an understanding as possible of all the issues related to the decision before you, including your available resources and the potential long-term costs or impact.

Objective analysis Avoid making emotional decisions. Personal biases could cloud your judgment (remember, Principle 1). Consider the costs, benefits, and trade-offs of your decision.

Deliberate action An organized, well-thought-out plan should outline the steps you need to take in order to help achieve the best possible outcome.

Using a checklist can help ensure you’re making an informed, objective decision that will help maximize your financial life. This is our “measurement of success.” Let’s take a look below at an example of a financial decisionmaking checklist that our advisors like to use.

PRINCI PLE 3

Using a financial decision-making checklist While this checklist may appear short and simple, once you run a financial question through it, you’ll realize it requires you to really consider your motivations, potential consequences, and whether you have what you need to make a decision.

The Checklist Define the decision, when it needs to be made, and whom it affects. Identify your MoneyMind and how it will bias your decision-making. Quantify both the real and intangible costs of your decision. Quantify both the real and intangible benefits of your decision. Determine whether you have the assets and the current resources to make the decision. Make appropriate adjustments to support your decision or determine the trade-offs you’d need to make in order to move forward. Determine whether or not it’s prudent to go ahead (remember to adjust for your MoneyMind perspective). Create a bullet-point list of steps to take. Confirm that you’ve accomplished your goals.

By using this checklist for every major decision, you’re giving yourself a systematic process to help work through that decision. It’s a process that strips away emotions or biases to help give you the objectivity to process information clearly.

When faced with a stressful decision, it’s important to go through this checklist – even if we don’t really feel like it (especially if we don’t feel like it!).

15 Why money alone won’t solve all your problems. We’ve all heard some variation of this sentiment at one time or another. We may have even scoffed at it. After all, how often have we thought to ourselves: If only I had more money? To be sure, having money is nice. It can help us avoid pain, buy the material things we want, and provide for our loved ones. But money alone cannot free us from our financial insecurities nor can it give us a genuine sense of control over our finances. In short, money cannot guarantee a happy financial life. So no matter how much money you have, you may still be prone to financial anxiety from time to time.

T HE WRAP-UP

This guide was written to help you: Understand the powerful influence of emotions in decision-making Focus your time and energy on the things that you can control Develop a clear and consistent process you can use to help make informed, objective financial decisions designed to maximize your life. Understanding what money means to you and how you think and feel about making financial decisions matters. That’s why our advisors believe in taking a personal, human approach to financial planning and guidance. Remember, much of your life is determined by how you make decisions. If you want to improve your financial life, you should understand how good and bad decisions are made; what you can and cannot control; and why you need a process for making good decisions. We hope the ideas in this guide will inspire you to talk and think about your financial life in a more personal way. And that it helps to bring clarity, confidence, and control to your decisions.

When it comes to financial satisfaction, it’s rarely just about assets and liabilities.

Put over 150 years of financial expertise to work for you. Let us get to know you, and show you how we can help. Find an Artifex Personal Financial Advisor at: artifexfinancial.com or call us at 1 (855) 752-6644.

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