When you understand how and why you make decisions, you can create and sustain a wealth strategy that serves your goals for the long haul.
Money can’t buy love, but it might fund happiness—if used wisely. If we understand the power of planning with intent and how we make decisions, we can pursue financial goals that will help us achieve personal ones.
That principle lies at the heart of our intent-driven approach: creating a wealth strategy that uses financial resources to achieve whatever we believe truly matters in life. Make a plan, own the plan and stick to the plan. It’s not a complicated approach, but it’s not always easy to follow. Here’s how and why your J.P. Morgan team uses that approach to create—and sustain—a wealth strategy that can work for you.
First, a little context. The field of research known as behavioral science provides the intellectual underpinning of our intent-driven approach. Behavioral science reveals the hidden forces behind our often irrational decision making. In the financial realm, this discipline explores the psychology of money.
Here’s the good news. The same forces that lead us to make poor decisions can be harnessed to help create the outcomes we really want. We cannot change human nature, but we can create frameworks to use it for our own good. Aligning wealth to intent is one such framework.
At a high level, the very act of identifying financial goals compels us to consider and articulate personal ones. Research shows that the attributes revealed by this exercise—our values, purpose and identity—are what truly motivate us and, ultimately, give us the deepest satisfaction. On a practical level, the science helps us make a plan, own that plan and then stick to it.
What we do together
The first step in our intent-driven approach is to explicitly identify the primary purpose, or intent, for your wealth. In other words, what path do you want your wealth to take over time? Consider these options:
The graphic shows how the four foundational intents for wealth evolve during and beyond a wealth creator’s lifetime. Throughout the wealth creator's lifetime, the creator could spend their assets down to zero dollars at the end of their lifetime or divide their wealth at the end of lifetime and give away to beneficiaries. If they'd like their wealth to extend beyond their lifetime, they could preserve it so their family wealth is structurally sustained across generations or grow the family wealth in perpetuity.
Next, we define those personal goals that support our chosen intentions. Every goal has four critical components: a dollar amount, a label, a time horizon and a priority level. For example, it’s a high priority to spend $1,000,000 annually in retirement, or it’d be nice to buy a $3 million mountain home next year.
We then organize these different goals into buckets, such as liquidity, lifestyle, legacy, and perpetual growth. We can thus align various pools of capital to strategies that will serve the purpose of the bucket.
When we identify intentions for our wealth and define our goals, we make and manage a plan that can serve us well over the long haul. Focusing our wealth into buckets puts our long-term goals into a specific, tangible form, allowing us to connect to the future and stick to our carefully constructed plan.
Why do those things matter? Because of the science.
The utility of mental accounting
In making a plan, we embrace the behavioral bias of mental accounting. This is the process by which we value money differently depending on the source or use of that money—$10,000 in casino winnings just feels very different from a $10,000 pay raise; $10,000 earmarked for gifts feels different from $10,000 targeted for home maintenance. Not surprisingly, we spend casino winnings more carelessly than salary; we buy gifts more joyfully than we pay bills.
In other words, we categorize our money and make mental accounts. This may not be entirely rational, but it’s quite useful. It prevents us from getting overwhelmed and, if done intentionally, allows us to pursue multiple financial goals with efficiency and focus. For example, if the down payment for our lake house is separate from the money earmarked for retirement and still separate from our grandchildren’s education fund, we can focus on decisions within each account as they arise, instead of worrying about the whole of our wealth.
The step of organizing goals into different buckets harnesses the power of mental accounting by aligning different goals to different buckets and, ultimately, different strategies that will help you reach those goals. It gives you a clear roadmap for decisions to make around planning, investing, borrowing and banking, depending on the underlying purpose of each bucket.
Take pride in your creation
The Swedish furniture store Ikea built a multinational empire by understanding that when people build something themselves—such as a bookcase or a desk—they value it more highly than a similar item bought ready-made. This simple yet powerful idea has come to be known as the “Ikea Effect,” a corollary of the endowment effect, whereby we attach a greater value to things we own.
What that means is that when we have a hand in building our financial plans, we have a greater sense of ownership in them—we will value them more highly than something off-the-shelf. The very process of building a plan makes it more valuable.
We want you to own and embrace your financial plan. Aligning your wealth to your intent is something that can be done in partnership with your J.P. Morgan team. The wealth strategy we create should reflect your unique vision, ideals, family and future.
Defining the future
What happens when we want to abandon our plans? We’ve all started a diet, exercise routine or financial strategy, only to stray when presented with a fresh temptation such as a delicious dessert or hot investment trend.
Behavioral science tells us this happens because we lack a connection to the long-term consequences of our actions. We actually think of our future selves as completely different people. Whether it’s the impact on our bottom lines or our waistlines, the consequences of our decisions today will be felt by “someone else” tomorrow. In short, we don’t stick to our plans because they benefit a future that we can’t quite imagine.
By making our goals as specific and detailed as possible—by separating them into buckets with timelines and dollar amounts, and priorities—we bring the future into tight focus. In this way, we more easily make emotional, visceral connections to those future goals. This helps us resist the urges to shift our short-term strategies without considering the impact on our well-defined, long-term goals, which in turn makes it easier to stick to our plans.
Taking action
J.P. Morgan can help you make a plan, own that plan and stick to it to accomplish your intent and goals. In essence, we’re using scientific insights into human behavior to empower money to fund happiness.
Now that you have a better grasp of why we use an intent-driven framework, you can explore how we do it. Your J.P. Morgan team can help you articulate your goals, organize them into buckets (liquidity, lifestyle, legacy, and perpetual growth), and explore applicable strategies across planning, investing, borrowing and banking using our proprietary Wealth Plan Plus planning tool. Our overarching purpose: to help you align your resources to create an intentional financial plan in support of a satisfying, rewarding life.
