Family Finances:
When I meet with families and couples, I often ask them the following question: “How are you doing financially?”
I leave this question intentionally vague, hoping to get a picture of clients’ money management skill, their perceived financial stress, and for couples, their ability to collaboratively work together to meet their financial goals. For most modern couples, objectively answering the above question is more complicated than a one-word answer allows (“we’re doing fine, I think…”). In this blog, the first in a 2-part series, I want to give you 2 of 4 simple measures of financial health.
Note: these concepts were developed in collaboration with Erik Garcia – a wonderful Financial Advisor and an even better person. For worksheets, see SmartMoney
Financially healthy families (or people, couples, businesses…):
1. Know where their money is going. On a monthly or quarterly basis, they track and categorize where their money is spent. Money is flying out of our accounts at break-neck speed – it’s very easy to lose sight of where it all goes. But the first step toward financial health is tracking your expenses over a period of time. Most people know how much their mortgage is, but how many people know how much
they spend in medical expenses on average in a year, or how much their utilities bills fluctuate every quarter? How much do you spend on coffee, or fast food? Donations, date nights, dental care? How much do you spend on accounting fees, cigarettes, storage units, fuel for vehicles, birthday parties? Families who are financially healthy have a good idea where their money goes.
2. Decide together on a plan for spending their money. Before you get paid, astute families make some decisions about where their money should go. They plan out how much needs to go to bills, utilities, car payments, insurance, food, tuition, etc. They also discuss how much they plan to spend on drinks, mp3’s, entertainment, pet care, road trips, hair care, clothing – the list can go on and on. And this discussion is collaborative involving multiple perspectives and agendas. Before you receive money, and before you spend it, plan together how you need to spend it, and secondly how you’d like to spend it, including how much you’ll give away or put into savings. Remember, a plan is just a guide – it’s not an inflexible prison. Make adjustments as needed, but talk about these together. Help hold each other accountable (see how that sounds a lot like accounting) to the plan.
Next, we’ll talk about 2 other financial skills found in healthy families…
