The Foundation of a Good Financial Plan

Congratulations. You just won a $315 million lotto. What are the three things you will do with the money? If you choose the lump-sum payment, after taxes you will be left with about $100 million, but that’s still a lot of money so think big.

When I pose this question to people, I get a host of answers - some common, such as buy a house, a car or travel the world, and some uncommon ones, such as go back to school, start a school or fund a specific research area. Nobody ever says spend everything, gamble the money away or go bankrupt. Unless they are mentally unsound, why would they? (For more, see: Financial Planning: It's About More Than Money.)

Yet, that is what happened to Andrew Jackson "Jack" Whitaker junior after he won the $315 million lotto in 2002. He started gambling, drinking heavily and carried so much cash around that he kept getting robbed. Within a few years, he was back to work. When asked about winning the lotto, he reportedly said, “I wish I had torn up that ticket.” This is not an isolated case. According to the CFP Board, almost a third of lotto winners declare bankruptcy. Some put the estimate as high as 50%. What makes the example of Andrew Whitaker unique is that he was a successful businessman and a multi-millionaire before he won the lotto. You would think he would know how to manage his finances.

Why do people, both the well off and the not so well off, lose their way around money? We think there are two reasons - a lack of self awareness and a lack of a financial plan.

The first and foremost step in creating a financial plan is understanding yourself. Understanding yourself is understanding your relationship with money and your values. Your relationship with money is how you view money and what you would do if you had and/or if you did not have it. Values are things that are important to you. (For more, see: The Importance of Making an Annual Financial Plan.)

How You View Money

  • Money provides you with security.
  • You want a lot of money and material items as soon as possible.
  • Money helps you feel important.
  • You use money to get things you need or want.
  • Money does not concern you and you are not worried about it.

Examples of Values

  • Accomplishment          
  • Contentment
  • Creativity
  • Culture
  • Esteem
  • Experience
  • Family
  • Fitness
  • Flexibility
  • Friendship
  • Honesty
  • Integrity
  • Independence
  • Personal growth
  • Popularity
  • Power
  • Religion
  • Risk taking
  • Security
  • Self confidence
  • Stability
  • Status
  • Strong convictions
  • Teamwork
  • Technical excellence
  • Uniqueness
  • Wealth
  • Winning

Creating a financial plan based on your values increases the probability of success and gives you the motivation to carry out the hard decisions, such as making sacrifices in the short term to benefit over the long term. You can also have a clearer vision of your future based on your values. Having a clear vision will give you the confidence to carry out the steps needed. Based on your values and vision, you can create your mission statement (statement of purpose) and then set your goals. A good mission statement includes your strengths, passions, gifts and the people that matter to you. Goals should include short-term goals and long-term goals.

These steps, when completed, would provide a solid foundation to your financial plan. You can then create a plan which is consistent with the things that are important to you, which capitalizes on your strengths and consolidates your weaknesses.

Foundation of a Good Financial Plan

If immediately after winning the lotto Andrew Jackson had been told he would soon lose it all, he would probably have laughed it off. Understanding yourself involves deep introspection and unbiased evaluation. Seeking the professional help of a qualified planner is recommended. (For more, see: Your Annual Financial Planning Checklist.)


Sarsi LLC (“Sarsi”) is a Registered Investment Advisory Firm regulated by the State of New Jersey in accordance and compliance with applicable securities laws and regulations. Sarsi does not render or offer to render personalized investment advice through this newsletter. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part II) and execution of an investment advisory agreement between the client and Sarsi.