A few years ago, a couple in their fifties came to Warren Averett Asset Management seeking advice about pre-retirement planning. At face value, everything seemed fine. He was a successful physician, and she was a stay-at-home mother to their two children. As we dove into their finances, however, it became clear that despite appearances, all was not well.
Throughout their marriage to that point, they had never really discussed money; she preferred to let her husband make those decisions. She had assumed he had everything under control. That’s why she was totally unprepared to learn that their spending habits and failure to budget meant they had saved far less than she had expected.
As a financial planner, I encounter this situation with clients all too often. I often meet with clients who haven’t talked about the state of their finances with their spouse or other family members much and have totally different ideas about the reality of their financial health. Luckily for the couple in this particular story, they had enough time to get on the right path toward a peaceful retirement.
Whether you’re nearing retirement age or just starting a family, there’s no better time to start working toward your financial goals. Here, I’ve outlined the top three things you can do when it comes to managing finances to help make sure your family is prepared for the future.
Communication is key! It is not possible to separate your financial life from your actual life. Every one of us will need to discuss money with our spouse, parent or child at some point. The important thing is that we understand we can all have different approaches toward money. Put differently, we all have a money perspective. Certain topics that make one of you cringe could be a completely comfortable topic for another person to discuss. The key is to try to understand and accept that the other person may have had different experiences that give them a different perspective when it comes to managing money.
It’s also important not to make assumptions about someone’s financial situation. For example, because someone is generous with money doesn’t necessarily mean they’re well off; just like being frugal doesn’t always mean someone is struggling with money. Openly communicating about money, even when it’s uncomfortable, will help you and the person with whom you’re communicating about money, establish the trust needed to achieve your financial goals.
CREATE A BUDGET
The goal of any plan is to accomplish the things that are most important to you. One of the best plans you can create for yourself and your family is a budget. A budget helps you prioritize and track your spending to ensure that you are on course to meet your goals. If you do not currently have a budget in place, you are not alone. A recent study found that approximately 60% of adults ages 35‒65 do not track their spending, and 40% have never had a budget. Even if you have never had a budget, it is not too late to start. Creating a budget does not have to be a drawn-out, complicated process because technology can do most of the work for us. For example, mint.com, or other personal budgeting sites, can be great tools to help you build your personalized plan.
GET YOUR DOCUMENTS IN ORDER
Aside from the need to have updated documents, it is critical to organize all of the documents you deem important. You should have a folder (electronic or paper) in a secure location, and this folder should include things like estate documents, insurance documents and health directives (plus a list of contact information for individuals who have been involved in the preparation of these documents—accountant, attorney, financial advisor, insurance agent, etc.). Recurring monthly bills, as well as statements for bank accounts, brokerage accounts and credit and debit cards should also be maintained in this folder. It is also important to include login information for email and any online billing. Finally, designate someone you trust to know where the folder is located in the event that you become unable to care for yourself or if you pass away. Organized documents help mitigate added stress that can come along with an untimely family emergency or event.
Ultimately, with the help of one of our trusted advisors, the couple I mentioned above did get on the right financial path, but that didn’t come easily and they had to make significant changes to do so. They had to change the lifestyle that they were accustomed to and commit themselves to not only spending less and saving more, but also, and maybe most importantly, communicating and holding each other accountable to the goals that they had and still have as a family. But they did get there, and so can you.
Share your ideas and thoughts and, in turn, be sure that you listen to what the other person involved in making financial decisions with you desires as well. Different perceptions about managing money can affect the decisions that we make. The ability to understand these differences, as well as maintaining a budget and organizing important documents, will help you make better financial decisions cohesively with your family.
Gavin Gillison serves as a Financial Planner and Client Consultant with Warren Averett Asset Management. He works with clients to help them coordinate various financial matters, such as retirement planning and investment management. Click here to learn more about Gavin or to reach out to him directly.