How to Better Assess Your Financial Future: Measure Backward

A man looks behind himself in the rearview mirror.

(Image credit: Getty Images)

Too often in our society, we compare ourselves to our ideal financial future. The problem is that an ideal, by definition, is unattainable. Social media has undoubtedly amplified this issue. At any moment, we can see pictures and posts from friends, family members or even celebrities who seem to be living fairy-tale lives.

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In reality, who knows what’s actually happening behind the scenes? But comparing our own lives to this apparent idealism can be distressing and even toxic. As Theodore Roosevelt once said, “Comparison is the thief of joy.”

At our financial advisory firm, we emphasize the concept of “measuring backward” with our clients. The concept is based on the idea that people are typically better off today than they were in the past, but don’t give themselves enough credit due to their focus on reaching an “ideal,” attaining future goals or comparing themselves to others. The inspiration for this philosophy derives partly from The Gap and the Gain, a book written by my friend and business coach, Dan Sullivan.

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If you think about where you are now vs. five years ago, for instance, there has likely been significant progress in many areas. At our firm, we believe conversations and viewpoints tend to be much healthier when they come from a place of gratitude and appreciation for what you’ve already accomplished, creating confidence and optimism rather than a sense of frustration or even failure.

Appreciating accomplishments

When people think about the past from a financial standpoint, it’s often to beat themselves up about previous mistakes. When speaking with clients, we try to help them understand that mistakes they might be dwelling on weren’t catastrophic.

It becomes easier for them to look forward in a healthy way once they recognize that the damage can be repaired, and they’ve learned an important lesson, instead of being stuck on the idea that they badly screwed up and might not be able to recover.

Since our conversations also emphasize attributes and accomplishments, we encourage them to ask themselves questions like:

What financial wins have I been most proud of in my life so far?
What are my biggest strengths when it comes to money?
What seeds have I planted that will bear fruit in the future?
What foundations have I laid that I can build upon?

Magnet and filter

We understand this approach might not resonate with every potential client, but we see it as a magnet and filter. While some people embrace the concept, others prefer to just focus on the numbers and looking ahead. Those in the latter category might not be the right fit for our firm and vice versa, and that’s OK.

Calculations and planning certainly matter, too, but we want to find wins for people by reflecting on their achievements and positive traits. This can help alleviate any frustration they might be feeling about their current situation or future prospects.

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One client comes to mind who felt like he was still playing catch-up from perceived missteps in the past and doubted he would ever be able to attain a comfortable retirement. For instance, he dwelled on past investment mistakes, particularly investments he wished he had made. Don’t we all wish we had invested in Apple in its early days? He was gripped by regret over his decisions and was fearful he had cost him and his wife a comfortable future.

Speaking with him also revealed that he and his wife are super savers, put two kids through college, had little debt, managed expenses well and were on a great track toward retirement from a numbers standpoint. He just couldn’t bring himself to believe that. Instead, he tended to focus on any dark scenario that might possibly happen.

Once we walked through how far they’ve come and all the great things they’ve accomplished together, it totally reset the conversation. We validated their many achievements. His wife embraced our approach right away, and while he has come around, we still reference their library of previous wins to help him maintain that mindset.

It’s not just about the numbers

Hypothetically, if the numbers don’t paint a great picture, people can still find some solace in recognizing their previous accomplishments. We also provide actionable advice on changes that clients could make in their lives to help put them on a better track — such as working longer, saving more, spending less and potentially taking on a little more investment risk.

While our “measuring backward” approach may make a positive impact on client mindsets, it’s not a magic bullet. Appreciating attributes and accomplishments won’t automatically make negative situations in a client’s life go away.

But when someone is fixated on the idea that they made bad decisions and now need to take drastic actions to compensate, they’re more inclined to overreact and behave impulsively. That’s when you see people sell at a time they shouldn’t or take on too much risk, because they’re desperate and feel the need to hit a home run.

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We believe that looking at life from a perspective of gratitude and appreciation, along with giving yourself credit where it’s due and not dwelling on previous perceived mistakes, is just a healthier approach that can also produce better decisions and outcomes.

Securities offered through Cadaret, Grant & Co., Inc., an SEC Registered Investment Advisor and member FINRA/SIPC. Advisory services offered through Cadaret, Grant & Co., Inc. and Cedar Brook Group, an SEC Registered Investment Advisor. Cadaret, Grant & Co. and Cedar Brook are separate entities.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Frank Legan is a Cleveland-based author and a Financial Adviser with SEIA. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, business owners, artists, families and retirees. He focuses on lifetime income planning strategies, investment advice and estate planning services. He also works with businesses to develop strategic and succession planning strategies.