Stewardship and Your Financial Plan

Recently, a journalist posed the question to a financial advisor, “What traits do the wealthy have that make them good at managing their money?” The journalist was apparently assuming that a direct correlation exists between one’s level of wealth and one’s skill in managing that wealth. An alternative question could be, “What are the traits of someone who is a good steward of their wealth?” Good financial stewards can be found across the wealth spectrum and they tend to share common traits.

Vision – For some, a vision is a clear sense of direction that is held within. For others, a vision may need to be written down in great detail to have meaning. Our experience has demonstrated benefit for both advisor and client to have a clearly defined vision of their finances with associated goals in writing.

Discipline – Good stewards act with discipline in their financial decision making. This typically means living within one’s means and acting in a manner consistent with accomplishing one’s vision.

Process – A process is followed to actively monitor one’s financial position in relation to the vision and make improvements and/or adjustments as needed. It is particularly important to have a process in place to identify the need for adjustments in a timely manner. Identifying adjustments as the need arises increases the likelihood that a plan will be successful. Otherwise, the risk of being forced to make a single dramatic adjustment greatly increases. Dramatic adjustments are to be avoided as they tend to have adverse consequences for the long-term outcome of the plan.

Stewardship involves having a vision, acting with discipline, and following a process. It also involves an element of continuously seeking ways to improve. This leads us to a final thought courtesy of Dr. W. Edwards Deming – whom many consider to be the father of modern quality control. Deming popularized an approach to continuous improvement known as Plan-Do-Study-Act (PDSA). While continuous improvement is something typically thought of in a business context, it can work equally well when applied in a personal context. Considering one’s financial plan, it can be applied as follows:

  1. PLAN – Create a plan that has specific goals.
  2. DO – Create an action plan that will support achievement of the plan.
  3. STUDY – Study the results of the plan and identify opportunities for improvement.
  4. ACT – Take action on the opportunities for improvement.

And of course, when the cycle is finished – repeat.

Regarding the question from the journalist, it is true that not everyone who has achieved a level of wealth is skilled at managing it. It is also true that not everyone who demonstrates the traits of a good steward will achieve a high level of wealth. However, those demonstrating the traits of a good steward can be confident they are making the best use of the resources entrusted to their care and they greatly increase their chances of achieving their personal financial goals.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser. Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & 2B filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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