The primary purpose of financial planning is to promote client well-being by building financial strategies that contribute to client well-being.
This article delves into the complex relationship between wealth and happiness, and explores the key elements of financial planning that promote long-term satisfaction.
Aristotle once said, “Happiness is the meaning and purpose of life, the overall purpose and purpose of human existence.”
With this in mind, financial planners act as alchemists, skillfully combining key factors such as income, expenses, assets, liabilities, longevity, risk and entrepreneurship to shape the current and future of their clients. ensure the well-being of
First, we assess the client’s day-to-day financial situation and future goals to create an effective financial plan. Next, create a projection of your lifetime obligations and determine the expenditures required to meet those obligations.
Material consumption and increased wealth cease to contribute to health and well-being beyond a certain point.
By creating a consumption profile, you will be able to align your financial assets with your yearly consumption needs. If this process is carried out well, your health will improve. However, there is a caveat.
The hypothesis here is that material consumption and increased wealth no longer contribute to happiness or happiness beyond a certain point.
This theory suggests that once an individual’s basic needs are met and a certain level of material comfort is reached, additional consumption or income leads to decreased well-being.
This hypothesis describes three different life stages: poverty, responsible consumption (comfort), and affluence (abundance).
Excessive consumption can have negative environmental and social impacts
For the poor, doubling wealth can lead to huge increases in well-being, and the main focus should be on generating income by establishing sustainable livelihoods.
For those experiencing comfort, the emphasis shifts to saving surplus income for future needs when active income generation ceases. Finally, regarding surplus funds, the effective utilization of surplus funds is the primary concern.
Some of the factors that influence the relationship between consumption and well-being include:
- Declining marginal utility: As consumption increases, the satisfaction gained for each additional unit decreases, and the overall utility of consumption decreases when basic needs are met.
- Relative income and social comparison: Comparing one’s well-being to others can lead to relative deprivation and unhappiness as income and consumption increase.
- Materialism and Consumerism: A focus on material possessions and status can lead to decreased well-being as individuals neglect other important aspects of life.
- Environmental and social costs: Excessive consumption can have negative environmental and social impacts that may outweigh the positive health impacts.
A professional financial planner must create an optimal wellbeing plan by predicting responsible consumption throughout the client’s lifetime and creating a sustainable life in line with those predictions.
This approach includes identifying productive assets, capitalizing on entrepreneurial opportunities, and investing in vitality and transformational assets to maximize longevity and minimize risk.
Financial planners may prioritize sustainable living
For advisors who deal primarily with wealthy clients, a focus on growing and maintaining wealth may not directly contribute to well-being. may prove to be For less affluent clients, sustainable living planning can be achieved through end-user planning technology and educational programs.
Encouraging clients to save their surplus income for their future well-being is essential, but it is important to recognize that over-consumption can have a negative impact on their overall well-being.
Instead, financial planners may make more money than saving money already earned to prioritize sustainable livelihoods, eradicate poverty, and ultimately promote well-being. In fact, the United Nations argues that we need more sustainable livelihoods to end poverty.
Steve Conley is the CEO of the Academy of Life Planning.