An Agile Approach to Financial Health

Using an Agile Approach to Improve Financial Health

Agile methodologies are an adaptable, iterative approach to project management created, familiarized and refined by software development specialists in 2001. The methodology, now familiar approach to project management, divides overall project goals into manageable, dynamic phases or components commonly called sprints.

The pillars and principles of an agile methodology offer a compelling correlation to the process and steps, the sprints, required for achieving financial health and wellness. As the various agile methodologies are familiar and often ingrained in the thinking and processes of tech professionals, and as the focus of the methodology is on flexibility, collaboration and responsiveness, it seemed reasonable to consider and divide the guiding steps to financial wellness into these same, dynamic and manageable phases, sprints, for optimizing financial health.

This agile approach gives us all a glimpse of the iterative and incremental steps it takes to achieve remarkable financial health and will, hopefully, serve as an inspiration on your personal path to financial health, wealth and financial independence. Iterative in nature, we have opportunities, as we accomplish sprints and achieve wellness, to visit and revisit our own financial health as our lives and needs change and evolve.

We’ll detail the elements of financial well-being, creating our “backlog” or the overall deliverable (financial wellness), and divide the necessary steps into manageable sprints, the agile steps to ultimate financial health. Starting with the overall goal or “backlog” of financial wellness, we’ll divide this goal into monthly or quarterly targets, prioritize tasks, establish realistic timelines and monitor our progress, enlisting our family or others engaged in our finances in these steps and getting buy-in from our team including ourselves, for the delivery of financial well-being. From these first steps, we’ll adapt, iterate and finally, discuss the potential for and the timing of seeking professional advice and guidance from qualified financial professionals.

Defining Financial Wellness (the Backlog)

Before we start our agile process, we need to define the project we’re delivering, the backlog, as it is often called in software development. In this process, we’re delivering financial wellness or financial health, and the customer is ourselves. We want financial health and all the features and advantages of financial health. There is a lot to unpack around financial health. It’s unique for everyone, but we can define it for this project. The Consumer Financial Protection Bureau defines financial well-being or financial wellness as “… a condition wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life…” Other definitions of financial well-being include an “..ability to actively pursue their goals and dreams…” and “the degree of overall satisfaction that a person feels about their financial circumstances.”

We can safely say, from these definitions, that the underlying principles of financial health are security, control and satisfaction. So, our project is financial security, financial control and overall life satisfaction. Easier said than done, perhaps, but by applying this familiar agile methodology, we can break down the necessary steps for financial wellness into manageable sprints, the agile steps to financial health. 

For an agile process to financial health and well-being, we will do the following: 

1. Plan the sprints, based on the goal or backlog of financial health
2. Gather the team together (our family) and agree on our sprints (the incremental goals)
3. Meet regularly and review our sprints and accomplishments
4. Hold retrospectives, meetings to review our accomplishments (and celebrate!)
5. We’ll repeat – because wellness is iterative and ongoing. 

By breaking down the lofty goal of financial wellness into manageable sprints we have an opportunity to actually achieve and reap the reward of delivering on this goal. It’s important to keep in mind the personal nature of this process. You are the project manager and can determine the size, scope and timelines for every sprint. Your sprints and your timelines, just as your goals, are uniquely yours. This is a guide to get you started. Now, let’s begin. 

The Sprint Understand Your Financial Situation

If we’re looking to improve our financial health, we need to assess and understand our own goals and financial situation. Are we living the lifestyle we want now? Can we maintain this lifestyle through retirement? Are we stressed about finances or confident in our position? It’s a very personal process and, aside from making it agile and incremental, a financial planner can often help provide the necessary objectivity to move us towards financial wellness. 

The path to financial wellness tomorrow starts by understanding today. Your first sprint is to evaluate your income. What is your gross salary? And your net pay, after taxes? There’s stock options, HSA benefits, Roth contributions, etc. Do you have any other sources of income? Dividends? Rental income? Consider all of that. Write it down. This is the money you have to work with, your income and assets.

Now assess your expenses. You might break down income and expenses into two different time-dependent sprints to make the process less challenging. What are your mortgage payments? And, your insurance costs? What about utilities, home repairs, appliances and other expenses? Then, there’s food, entertainment, clothing, subscriptions, and the like. Lastly, there’s debts and obligations. Car payments, loans and mortgages. It all adds up, and amounts to your overall net worth.

Assessing your overall net worth is a key step to the next sprint, establishing financial goals. Once you have the full picture of your assets, you see what money is coming in and have a full understanding of what’s going out, you can start planning for your goals. Are there any imbalances? Do you see room for obvious improvement? A Lincoln Financial Consumer Sentiment report from November 2022, found that 88% of US adults see room for improvement in their financial wellness, 15% of those respondents claim to have done “extremely poorly” when grading themselves on their own financial wellness. 

The above responses to your assessment sprints are critical to your goal and a budget setting sprints. And, while individual goals vary, healthy financial goals are universal – security, control and satisfaction. In challenging financial times, like recessions or periods of high inflation, the security of an emergency fund and the means to control where and how your money is allocated become increasingly important, particularly to our life satisfaction.

Define SMART Financial Goals

A SMART perspective is important for goal setting. SMART is the acronym for specific, measurable, achievable, relevant and time-bound. These criteria set the stage for clear and attainable financial goals. Clarifying goals helps build good financial habits and allows for progress on our path to financial wellness. Goals should be identified as both short-term and long-term, like eliminating unused streaming subscriptions, leveraging a HELOC for a remodel or supplementing our emergency funds (short-term) to more long-term objectives like maximizing our Roth contributions, coordinating estate plans and creating 529 plans for our newborn. 

If your objective is to save for a rainy day or emergency fund, make your monthly savings goal reasonable. If you want to maximize your investments to prepare for retirement or your growing families needs, get as clear as you can on objectives, amounts and timelines. We’ll figure out how to achieve them in the sprints. Your 65th birthday or your child’s graduation from high school are both relevant and time-bound aspects of your goals.

Start with a list. Be specific, that’s the “S” in SMART. Write down your goals and fix dates, both short and long-term, to these goals. A 2021 Charles Schwab Modern Wealth Survey found that “65% of people with a written financial plan say they feel financially stable…” So, write this down or find someone who can help you do this. Your goals will lead to a plan and will inform your strategies for savings and investments. 

Fortunately, we’re talking finance, so the measurable part is pretty easy as we watch our savings and investments increase as we see our spending and expenses refined. The realistic part might be a little less obvious. Can we actually meet the goals we’re setting for ourselves? We need to be honest about our assets, our situations, our perspective and our life in general, if we’re going to be realistic. Don’t set yourself up for failure. Be reasonable and, again, specific; write all of this down, into your sprints. Use cards or a Miro board if you have to. It’s very personal and a skilled financial planner might be a good resource to help you understand your overall financial situation for establishing realistic and attainable goals. We’ve all got unique financial situations, so be honest with yourself, your means and what you can possibly achieve.

Goals are attainable and financial wellness is possible, provided we divide these goals and objectives into incremental steps we can achieve, measure and celebrate. 

Divide Financial Wellness Steps into Sprints

Successful agile processes include documentation to measure our successes against. With goals established and documented we can prioritize our sprints and measure our successes. A familiar Sprint template or planning template might be useful here. 

When setting priorities for our financial sprints we need to consider a variety of factors, including interest rates on loans, our current net worth, our age and our appetites and desires. Our age may dictate our acceptance of investment risk, and the interest rates on home equity lines or in the market might dictate when and how quickly we pay off or obtain a loan.

If your goal is to save $60,000 for an emergency fund, break down the savings goals into monthly or quarterly targets. If the goal is to retire early or purchase a Sprinter van for off-grid excursions, prioritize and deliver on the goal monthly, saving reasonable amounts you can celebrate putting aside each month. It’s a sprint so you’ll want to remain accountable and acknowledge success at each step of the process and each deliverable date.

Budgeting the Sprint for Awareness
We’ve got goals. We’ve written them down. We’re making progress on the backlog. We have a clear understanding of our income, assets and expenses and now it’s time to budget for our goals. Budgeting provides us a granular perspective of our finances. It provides impetus and opportunities for little wins as we meet our budgets month to month. The budget is the tool for meeting your established goals. Each month can be a budget sprint. Each line item a subtask of the sprint, the user stories. If you’re aspiring to a different life or lifestyle, if you want more from your financial situation, you’ll need this budget and these “user stories,” these aspirations, and you’ll need to stick to it to achieve financial health. 

Saving and Investing Sprints

An agile approach to financial health and wellness could emphasize a financial safety net and growing your estate or net worth. These become your savings and investing sprints. In these cases, a qualified wealth manager, fiduciary or financial advisor can be critical to one’s long term success. Understanding how inflation or tax obligations impact your savings and investments is an important part of your overall strategy for financial wealth. Misjudging inflation or failing to understand the obligations of your stock compensation could have serious and detrimental impacts on your spending power in the future. 

Understanding all of this, maximizing your employee stock compensation, leveraging mortgage balances, and contributing to a mega backdoor Roth with minimized tax contributions may require the expertise and insights of a professional financial advisor. It’s totally possible these days to find the information and deliver on these strategic opportunities yourself, but doing it right can amount to a full-time job and any project manager worth their title knows when to access the expertise of a professional. You may not even be aware of strategies like the mega backdoor Roth and just figured you were stuck with your maximum 401(k) contribution cap. It’s advisable today to adjust to the potential for a new economic outlook after nearly 40 years of declining inflation in the U.S., as a new era of persistent inflation may be underway.  

Risk Management Sprint

Talking about risk, as you make progress on your sprints, your life evolves and your assets and net worth increase, it is important to safeguard your family and your assets from the unforeseen. Underinsured assets can leave you financially vulnerable. An American Property Casualty Insurance Association study found that, “Only 30 percent of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs…” A widely referenced CoreLogic survey found that “… 64% of U.S. homeowners don’t have enough insurance to rebuild their homes and are underinsured by an average of 27%.”

Your insurance coverages need to account for both the rise in inflation, costs of materials, life changes and your accumulating assets. Dividing each of your policy coverages into a separate sprint and tacking each one in turn, with specific timelines can make this task a bit more manageable. Consulting with a trusted insurance specialist or licensed insurance broker is another option, but it’s wise to be wary of brokers as they often receive a percentage commission on each policy sold and may be incentivized to oversell in order to see larger gains from their efforts. 

Many wealth managers and financial planners maintain licenses to sell insurance in specific states or jurisdictions. This can be an added bonus when evaluating policies as they’ll have a full understanding of your assets and net worth as well as knowledge of premiums, policy coverages, riders and exclusions. With their insights you can ensure adequate coverage without overpaying on premiums, including the addition of inflation triggers in policy renewals.  

Prioritizing Sprints – Tasks to Financial Health

Just like exercise, it takes prioritizing financial health to achieve gains. If you’ve gone through the effort to understand your net worth, assess your financial protections and obligations, you’re already making financial wellness a priority. While sprints and SMART goals make prioritizing a bit easier and more palatable, we’re human and suffer human temptations. The impulse trip to the rock festival in Barcelona, that new Mercedes Sprinter van or that stunning pair of shoes are a delight in the moment, but may not support your overall financial health, well-being or long term goals. Financial diligence is hard, so make sure you celebrate your milestones and wins along the way. 

Establish Realistic Timelines for Financial Sprints

Probably the most powerful and useful aspect in an agile strategy for financial well-being is realistic timelines. We’d all love to afford the Mallorca holiday and the new M5 but there are competing priorities. Taking stock, understanding your situation and remaining realistic are keys to successful sprints and financial wellness. Priorities differ for everyone and will change as your life does. Retirement savings may be a key priority for many, but others may find themselves with well-paid professional careers and the beneficiary of a large estate with access to generational wealth. In these cases, prioritizing a tax analysis and estate planning may take precedence. Timelines are relative and set by you, the project manager, based on your needs and those of your customers, your family.

Engaging Retrospectives

Be realistic in your goals and timelines. If you set a goal and miss your deadline, set it again, and maybe extend it. This is the retrospective. It keeps you accountable and flexible. What caused you to miss your deadline? Was the task too vague or complex? You might need to consider the specificity of the steps or reevaluate how much time you need to make this happen. To those familiar with the retrospectives in the agile process at work, these timeline questions become key to discussions around progress and are a true strength of the process. Life comes at us all fast, we know this. So, it’s okay to shift and move to accommodate these vicissitudes of life. As the project manager and the end consumer, you have the authority to extend timelines as you need to but don’t procrastinate; financial health is a constantly evolving process.

Iterative Sprints – Monitoring Progress Towards Financial Health

Regularly reviewing your financial plan is crucial to your overall financial health. Reviewing your plan at least once a year is recommended, or whenever you have a significant life change such as a marriage, a new job or the birth of a child. 

Are you making progress towards what you have defined as wellness? Are your goals reasonable? By reevaluating and reviewing your budgets and goals, financial wellness becomes a habit and will inform all of your financial decisions. And, like all habits, good and bad, it takes repetition to make them stick. So, stick to your goals, think about them, assess them and reassess them for best result. Regularly reviewing our goals, budget and plans ensures that we have appropriate expectations for our situation and allows us the control (there it is) to adjust accordingly. A financial planner typically reviews your plans and assets at least annually, if not more frequently or as needs dictate.

Adapt and Iterate Your Financial Plans

Any good agile process is iterative. With the documentation you’ve developed and the SMART goals you’re working towards, it’s easy to see where progress is being made or when we’re missing the mark at each retrospective. As your needs change and your life moves forward, so will your goals and your financial plans. None of this is fixed in stone and truly, there is no end to the iterative process or financial planning. If you’re finding it difficult to meet a savings goal, or stay on budget, consider how you might scale the goal to be more attainable. Explore ways to increase your efficiency and meet your goals effectively. Take smaller steps towards financial wellness as you make and evaluate your plans. They are your sprints and your goals to reach. 

Find Professional Financial Advice

As you strive towards goals, there may come a time where the complexity of the task exceeds the capacity of the team. In these instances, engaging a professional is the recommended strategy. Many of the steps in this process can be readily and expertly handled by a fiduciary, financial planner or wealth manager. If you’re feeling overwhelmed or unsure of an approach, consult with a specialist. There’s no shame in seeking assistance and availing yourself of expertise. The benefits of a trusted financial partner on your path to financial wellness may far outweigh the expense and may even give you the added confidence you need to further your goals and aims. Financial planners are also uniquely collaborative. If you’re deep in this process and find yourself stuck or missing your goals, many of them will be delighted to assist you and can be uniquely flexible in their approach to your specific challenges. 

When investing, either for retirement or increased financial security, there’s proven value in enlisting the advice of a qualified investment professional. A study conducted by the Financial Planning Association found that “those who had calculated retirement needs and used a financial planner… generated more than 50% greater savings than those who estimated retirement needs on their own without the help of a planner.” The same study suggests that “Those who used a financial planner and had calculated retirement needs had more retirement savings than all other household groups.” The goal here is efficiency.

Certified Financial Planners can assist with the overall management of your wealth and assets, determining tax-sensitive approaches to investing that maximize returns while minimizing tax obligations. You may find, once you engage the services of a qualified financial consultant, that they are uniquely responsive and deeply invested in your financial success. While fiduciaries are obligated to your best interest, they ultimately want you to succeed because as your investments grow under their guidance, their fees increase accordingly.

Sprints to Maximize Retirement Savings
We’ve got clear goals. We have a comprehensive understanding of our net worth and expenses. We’re sticking to the budget. But, are we allocating funds appropriately? Are our retirement savings and investments on track to support us when the time comes? Are we accounting for inflation, contributions and tax obligations? Here, again, is where the expertise of a skilled financial planner may prove pivotal. 

A financial planner can review and assess your various retirement savings and investment accounts and provide a personalized investment strategy based on your age, financial situation and goals. The amount of time until retirement, for example, will dictate your tolerance for risk. Whether you have a spouse, children or additional assets or other obligations can all impact the strategy for your retirement savings.

A certified financial planner can make recommendations on retirement account strategies and give you additional insights into the tax implications of your different investment options, potentially increasing your overall savings and net worth. You can maximize your retirement savings on your own, certainly, but the skills and insights of a financial planner can dramatically improve your outcomes. Informed planners can help you determine when and how to withdraw funds, manage required minimum distributions, maximize contributions, and explore different income sources and tax harvesting opportunities.

Celebrate Milestones and Successful Sprints

“Positive reinforcement is the foundation of lasting change,” says famed life-coach and business strategist, Tony Robbins. Celebrating the successes of meeting milestones and goals on your sprints provides the motivation and reinforcement to continue on what, for many, is a daunting task. Celebrating may mean taking your partner out for one of the nice meals you’ve been foregoing, or springing for that sassy pair of stilettos. Celebrations can be small, meaningful and keep you on the path. Financial wellness is as much a mindset as it is a strategy and procedure. Applying the agile process and celebrating your milestones and success along the way will inspire you to do more, live more aligned with your finances and eventually create the security, control and, certainly, satisfaction of financial health and well being. 

Employing a flexible, agile strategy, setting SMART goals, iterating and revisiting these goals will start you on the path to financial wellness and improve your financial health regardless of your age or income. Now, go celebrate, as you’ve just finished the first sprint in the agile process towards financial wellbeing.