Dad mows the yard, cooks all the meals, and handles all repair jobs. Mom does all the grocery shopping, is in charge of taxiing the kids to their ‘practice du jour’, and takes care of the laundry.
Division of household duties such as these sounds all too common these days. In most cases, the handling of family finances falls to a particular spouse as well. However, when it comes to the family finances, it is imperative that both spouses play a role. If not, the result could be a devastating blow when a spouse is left to pick up the pieces.
The primary risk faced by a household which has one spouse managing the family financial affairs alone is that the other spouse is left completely in the dark. Being the financial decision maker in the family, if something were to happen to you would your spouse be able to step in and manage the family wealth? More times than not, the death of a spouse is the immediate situation people think of. But the same can be said about being a spouse of a soldier being sent half way around the world for the next year, or someone who is too ill to continue handling the family finances. Even if you expect your spouse will turn to a financial planner or advisor for help when you’re not available, will your spouse even know where to look for such help much less what questions to ask?
Taking a proactive approach to bringing your spouse up to speed on your family’s finances will pay huge dividends in case the time comes when you are not around to assist. Most financial advisors will agree that there are six questions your spouse needs to be able to answer regarding your family’s financial picture.
1. Who Do I Need To Contact?
This first step is the most critical. Your spouse needs to have a well prepared list drawn up for him or her listing your important contacts. These include, but are not limited to, financial planners, accountants, attorneys, insurance agents, and bankers. Anybody who has a role, as slight as it may seem, in your family’s finances needs to be on this list. For each person on the list you should include their names, company names, addresses, phone and fax numbers, and email addresses. A brief overview of what each one of these individuals has done for your family would be beneficial as well.
2. Where Is Everything Located?
Your next step is to outline what assets are held and where they are held. These assets include not only any personal investment accounts, but also company retirement accounts and insurance policies. Other documents of equal importance are your wills and ancillary documents, such as your Power of Attorney documents and Living Will. If you currently do not have these documents in place, it is critical you do so as soon as possible.
Organization is critical. A well-organized filing system will lighten the already mounting stress felt by your spouse or loved ones forced to pick up where you left off. Start by creating folders for each investment and bank account, estate planning documents, insurance polices, etc. and be cognizant in what information is contained in each. For example you will want to keep investment account statements and trade confirmations, but you can throw away annual reports, prospectuses, and marketing material. With insurance policies you will want to keep the policy statement that is currently in force, but you can throw away older policies that have lapsed.
Once this has been done, consider creating a master directory that lists all of your accounts and account numbers, names and numbers to the appropriate contact person, any website addresses and login/password information to gain access to your accounts. Store this information in an ultra-safe place such as a home safe, safe deposit box at your bank, or in a password-protected file on your computer (and make sure your spouse knows that password!).
3. How Are We Doing Financially?
Your spouse doesn’t need to know about every trade you make and every stock you may own; however, you should sit down as a couple from time to time and review your current financial picture. How much do you have now and how much of that is liquid (how easily can it be converted to cash in an emergency) are just a few items to discuss. Are you on track to reach your shared goals? If not, what steps need to be taken now to get you pointed in the right direction?
Deciding how much to spend, save and invest each month is a basic discussion that every family needs to have, and both partners should be involved in those decisions. There is a saying: It is best to discuss your finances on the 1st than to argue about them on the 31st.
4. In What Order Should I Access Our Assets?
While some of your assets can be accessed at any time, drawing on other assets may result in unnecessary fees, penalties and taxes. Your spouse needs to know which accounts and assets to tap into first should the need arise. He or she will need to know which assets are more liquid and those that are not. The standard rule of thumb is you will want to have at least three to six months of living expenses in a highly-liquid account for emergencies. Ideally, this will be held in savings accounts, money market funds, or certificate of deposits (CDs). If you are retired and are dependant on your portfolios for living expenses, a good target to shoot for is two to three years of living expenses in highly liquid accounts.
5. Who Do I Turn To For Help?
You may be the go-it-alone type when it comes to your investments and family finances, but it may be unrealistic to expect your spouse to follow in your footsteps. It can’t hurt to assume the possibility that your spouse will be in need of a financial planner or advisor. Start asking your friends and co-workers if they are working with an advisor or could refer you to someone.
As with most professions, numerous professional designations exist in the field of financial planning. The most widely recognized is the Certified Financial Planner (CFP®) designation. Financial professionals who carry the CFP® designation have been educated and tested in all areas of financial planning, including estate, insurance, and tax planning – not just investments. Additionally, they must maintain a required amount of continuing education each year and adhere to a very strict code of ethics. Other designations in the industry include the Chartered Financial Consultant (ChFC), Chartered Life Underwriter (CLU), Certified Personal Accountant (CPA), and the Personal Financial Consultant (PFC), and most of these designations carry education and continuing education requirements as well to maintain the credential.
In the end, however, you will want to find a financial professional who shares your philosophies on life and your finances, and has experience working with others who have needs similar to yours. Professional designations are important; finding someone you trust is critical.
6. Where Can I Learn More?
Even with a financial planner or advisor in the wings, it is important for your spouse to know where to turn to build a basic foundation of financial literacy. For a spouse that is not used to finances, more times than not any book on basic investment and financial topics won’t fall into the ‘I just couldn’t put it down’ category…..it won’t be a fun read. Having a handful of commonsense investment and personal financial planning books will, however, provide a lot of useful information in an easy-to-digest format. A few examples are The Only Investment Guide You'll Ever Need by Andrew Tobias, and A Random Walk Down Wall Street by Burton G. Malkiel.
Another option to consider is taking a personal financial planning course at your local university or community college. Non-credential courses are very affordable and are offered at various times and days of the week to conform to your schedule. More importantly, it can provide enough information to make the transition from having never touched the checkbook to actually running the family finances much more seamless.
Nobody wants to think about life without their spouse. Not having your financial ducks in a row, along with a financially-educated spouse who will be able to pick up the baton and run, will only make the transition that much more difficult…..both emotionally and financially. Take the time to sit down together and start this indispensable process.
Please contact MTR Financial Services, LLC if you have any questions or would like assistance in educating you and/or your spouse on the basics of family finances.
Matthew T. Russell, CFP®
President, MTR Financial Services, LLC