Planning your finances is like planning your time; understand – 06/24/2023 – From Grain to Grain

Just as in our daily routine we easily get lost engaged in tasks that are neither important nor urgent, the same happens with our financial planning. As Stephen Covey, author of the 7 Habits of Highly Effective People, warns, your focus should be on what is important, but not urgent, for example, your retirement or financial independence.

In his book, Covey addresses time management, but the teachings can be used in managing your finances. After all, as they say, time is money.

Covey suggests readers separate four quadrants as shown in the figure below.

On the vertical axis it separates between what is important and what is not important. On the horizontal axis, the separation is between what is urgent and what is not urgent.

Try to separate how you allocate each item of your financial budget in these four axes and observe what you have concentrated more expenses on. For example, how much time and resource from your monthly budget do you spend on your retirement goal? For your financial independence? What about the new car, travel, clothing, new cell phone and restaurant?

Where do you include each of these expenses across the quadrants? Realize that there is no one-size-fits-all view of every expense. But, without a doubt, some goals must necessarily be well classified and have their focus.

As Covey warns, we should focus on Quadrant 2 goals, manage Quadrant 1 goals, avoid Quadrant 3 goals, and limit Quadrant 4 spending. But that’s not exactly what most people do.

We often find ourselves spending planning time and money on what is not urgent and not important. In this way, the budget for what is important and urgent, which are the necessary household expenses, is more restricted.

The focus on equating the expenses of what is important and urgent brings us stress and takes our focus away from the main thing.

Thus, the most important financial goals, but which are not urgent, are sidelined. However, these important and non-urgent goals are exactly the ones that will change our financial lives.

Among the important and non-urgent goals are your retirement or financial independence. No doubt they should be among the most important financial goals for everyone, but because they are usually far away, they are not urgent.

The fact that they are not urgent does not mean that they should not be contemplated at this time. On the contrary. They should get your first attention and Covey illustrates this in a very interesting experiment. This experiment can be visualized in a talk by Covey on Youtube.

In the experiment, Covey makes the analogy of what is important with big stones and what is not relevant and, perhaps even urgent, with small stones.

It demonstrates that if you try to fill a vase with small stones first, that is, starting with the unimportant financial goals, there is no room left for you to include the big stones, that is, the important goals. If you start with the important goals, i.e. the big rocks, the non-relevant goals fall into place next.

Therefore, reflect on how you are distributing your budget among the four quadrants and start focusing on what is most important even if it is not urgent right now. Do not wait for your retirement, in addition to being important, to become something urgent, because this will only stress you out and you still run the risk of not having a good retirement.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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