Financial Planning: Proactivity

Bill Del-Sette |

“An Ounce of Prevention is Worth a Pound of Cure”

— Ben Franklin

“Real freedom is creative, proactive, and will take me into new territories. I am not free if my freedom is predicated on reacting to my past.”

— Kenney Loggins

According to a recent survey:

  • Two thirds of Americans are not saving enough for retirement.
  • Forty-four percent of all U.S. households (48 million) either don’t own life insurance and believe they should, or own life insurance and believe they need more.
  • Forty-one percent of Baby Boomers don’t have a will.

Why is it so difficult to take an action that we know is beneficial, like increasing savings rates, consulting an attorney for estate planning, or buying life insurance? The answer lies in proactivity.

What is Proactivity?

The definition of being proactive is creating or controlling a situation by causing something to happen rather than responding to it after. The opposite of proactive is reactive. If you think about it, most of the things in life that matter are not urgent, and are not acted on until they become urgent.

In Stephen Covey’s book the 7 habits of Highly Effective People, Covey suggests a proactivity exercise:

  1. In your personal life, consider 1 activity that you are not doing now, that, if you did it consistently, would have a tremendous impact on your life.
  2. In your professional life, consider 1 thing that you are not doing now, that, if you did it consistently, would have a tremendous impact on your life.

Now, consider the nature of these 2 activities. Are they urgent? Chances are that they are not, because, if they were, you’d be doing them. They ARE important, however, and that’s where proactivity comes in to play. You have to override the inertia and take action to make a difference!

Covey came up with a deceptively simple time management matrix in which how you spend your time can be broken into 1 of 4 category quadrants based on urgency and importance:

Financial Planning and Proactivity

Chances are, the activities that are your answers to the questions above fall into category II – not urgent but important. However, we get so caught up in the day to day things that we don’t take the time to think about and plan for what’s most important to us in the long run, and end up in quadrant I putting out fires. Frequently, this is the result of not spending time in quadrant II. We should avoid quadrants III and IV at all costs.

Some examples of quadrant II activities include:

  • Preparing and sticking to a financial plan
  • Reviewing your financial plan
  • Saving enough for retirement
  • Reviewing your credit report at least annually
  • Drafting an estate plan
  • Contacting your advisor before making a big financial decision
  • Shredding old, confidential documents
  • Videotaping the contents of your home for proof of ownership and trading with a friend in case a natural disaster destroys everything.
  • And many more

Non-financial quadrant II activities include:

  • Preparing or reviewing a personal mission statement and your life goals
  • Spending time with loved ones
  • Exercising
  • Eating Right
  • Learning something new

The more time you spend doing quadrant II activities, the less time you will have to spend putting out fires in quadrant I. Of course, if you don’t take care of quadrant II activities, they will eventually become quadrant I activities, usually when it is too late to do anything about them.

For instance, saving for retirement is not urgent when you are 30, but it is when you are 50. Shredding old, confidential documents becomes a quadrant I activity when your identity has been stolen!

Making sure you are not overspending in retirement is not urgent when things are going well, but becomes very urgent after drawing your portfolio down too much in a market downturn. How about planning for nursing home care? This becomes a quadrant I, urgent activity when your family is about to lose everything to pay for it.

It’s a good idea to do quadrant planning every week. Simply draw the above 4 quadrants on a piece of paper. Then, map out your quadrant I, urgent AND important activities – these are must dos. Afterward, map out your quadrant II activities. This is where you should spend your time after taking care of the urgent and important things. Eventually, if you spend more time in quadrant II, you will have fewer fires to put out in quadrant I. You should have no activities in quadrants 3 and 4.

How do you know what are quadrant II, important but not urgent activities? The answer to this question is different for everyone, and revolves around your values and what matters most to you. Common activities include exercise, reaching out to a friend or loved one, or taking a class. How to determine your quadrant II activities will be the subject of another blog post, but your answers to the 2 questions above is a good place to start!

References and links: