Connect with us

Advisor

Why Financial Planning Demands a Perfect Balance of Qualitative and Quantitative Thinking

Published

Why Financial Planning Demands a Perfect Balance of Qualitative and Quantitative Thinking

Ask anyone you know if they are right-brained or left-brained, and they’ll probably have a pretty strong opinion on the matter. Artists and athletes tend to be creative, qualitative people who live and breathe in a right-brained world. Accountants and mathematicians tend to be data-oriented, quantitative thinkers who bask in their left-brain abilities. And while our innate abilities may certainly make us more comfortable focusing on one area or the other, there are distinct advantages to embracing both sides of the brain—the holistic, emotional right-brain and the linear, process-oriented left-brain—when it comes to financial planning.

The reason? Financial planning requires a unique combination of qualitative and quantitative thinking—and finding the perfect balance between the two is where the smartest solutions can be found.

Planning with the right side of the brain
 

Drawing on the Right Side of the Brain has long been considered a must-read for amateur and professional artists. The book is based on the idea that that learning to use the right side of your brain more effectively will help you see and draw things more artistically, no matter how your brain is wired. Perhaps it should be required reading for anyone who wants to be more effective at financial planning—for themselves or others.

If you’re wondering what art and creativity could possibly have to do with managing your money, you’re not alone. After all, smart money management is all dollars and cents, right? Actually, it’s not. Dollars and cents certainly matter, but they’re not the only piece of the puzzle. Not by a long shot. Here’s why:

The right side of the brain is brilliant at viewing the holistic nature of things and how all the pieces of a puzzle work together. Right-brained thinkers tend to be more intuitive and more creative. Qualitative rather than quantitative, they are big-picture thinkers, and this is exactly the kind of thinking that’s needed when it’s time to paint a vision of your ideal future—which is where the financial planning process begins.

Discovering your vision and establishing your goals requires taking a right-brained view of the world to look holistically at your financial big picture, explore your fears about money, and outline your dreams for the future.

To start planning with the right side of your brain, ask yourself:
 

  • How do I want to live my life before and after retirement?
  • What worries me about my financial life? If I could change one thing in my financial life today, what would it be?
  • What tradeoffs am I willing to make to get from where I am today to where I want to be tomorrow?
  • If I could achieve financial freedom, how would I pursue greater meaning and purpose in my life?
  • How do I define success—personally, financially, and spiritually?
     

Your right brain is the master at exploring these important questions and, even more importantly, at defining the answers.

Creating “a dollar and a deadline” with the left side of the brain
 

Once the right brain has done its job and you’ve painted a clear vision of your financial future, it’s time to put the left brain to work, using your quantitative, analytical powerhouse to align your holistic vision with “a dollar and a deadline.” This tactical strategy is what brings your vision to life.

The left side of the brain is ruled by logic, which is vital when figuring out how much money you need to fulfill your goals (the dollar) and how much time you have to save and accumulate your wealth (the deadline). Working from there, the next step is to examine the resources you have and create a strategy to fill any gaps between where you are today and where you want to be tomorrow. To tackle the side of the equation that’s managed by your left brain, ask yourself:

  • How much income will I need to support my vision of retirement?
  • Is there any gap between my current savings and my required income?
  • If there is a deficit, how can I increase my earnings, decrease my spending, or both?
  • Do I need to realign my priorities to meet my goals?
  • Are there any other financial resources or obstacles I haven’t considered?
     

Related: How to Know When a Financial Advisor Is “the One” for You

This is also the time to explore ways to save money in every area of your life. Balancing taxable and tax-deferred investments. Restructuring debt. Leveraging employee benefits. Budgeting—today and in retirement. Lowering investment and insurance costs. Adjusting asset allocations and diversifying investments to reduce risk. Donating to charity. Leveraging a donor-advised fund to reduce or eliminate taxes on non-qualified deferred compensation. There are dozens of pieces to the analytical puzzle, and the left brain is the perfect tool to help tackle them all.

Striking the perfect balance
 

Financial planning calls for excellence from both sides of the brain. Failing to establish a qualitative, holistic vision can slash the potential rewards of even the smartest math. Failing to create a quantitative, numbers-based strategy that supports “a dollar and a deadline” can thwart the most carefully constructed vision for the future. To strike the perfect balance, be sure to recognize that each side of the brain has an important job to do. Put them both to work (and be sure your financial advisor does the same!) and watch your vision become a reality.

Ready to start planning with both sides of your brain? Let’s schedule a call to discuss a qualitative, quantitative strategy that works for you.

Continue Reading

Trending