THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE READ MY DISCLOSURE FOR MORE INFO.
Have you designated the Chief Financial Officer of your household yet? Inevitably, someone will have to fulfill that role. However, the responsibility shouldn’t be taken lightly. You may be single and just need to take control over your finances. Or, you may be married and must take over as CFO because you lost a game of Rock, Paper, Scissors. Simply put, every household needs a CFO to navigate the financial game of life.
Recently, I started to read through the book, Family Inc.: Using Business Principles to Maximize Your Family’s Wealth. It is a great “how to” guide for achieving financial security and thinking strategically as your family’s CFO. Here are some tips and tricks to help deal with the inevitable money decisions while you are in that role.
What It Means to Be the CFO of Your Family
As the CFO for your family, you are responsible for managing your family’s assets and liabilities. You ensure that your family’s net worth stays healthy and most importantly, positive. You make the difficult decisions on the best direction for your family’s financial well-being. This may mean hiring a financial advisor to provide financial guidance or even firing an accountant who isn’t providing value anymore. At the end of the day, since you will be responsible for your family’s money and how it is invested, the financial excuses stop with you.
Create a Family Vision Statement
Every family needs to be on the same page regarding its finances. Yes, these exercises can be a bit off-putting. And writing down your family’s goals, dreams, and vision can be incredibly scary. However, by putting pen to paper, these goals can facilitate a dialogue within your family. It will better define your family’s value system. You can go in many different directions, but I would encourage you to create a vision based on the legacy your family wants to have. It can be a powerful, eye-opening exercise to do with your family.
Manage Your Cash Flow
Once you have set your family vision, set up some clear financial goals. That may involve spending in certain areas and saving in others in order to reach those goals. Just like a company, your family doesn’t have an unlimited budget. The best way to see how much you are saving and spending your money is through the free website Personal Capital. This website aggregates all of your accounts together so that you are able to manage your cash flow properly.
Analyze Your Expenses
Once you have set up Personal Capital and have identified how much money comes and goes each month, start looking at all of your expenses to identify ways to lower your costs. That might mean cancelling some subscriptions that you no longer use, making some phone calls to lower your insurance premiums or even looking at new savings accounts with higher savings rates. Remember, as the CFO, you have to view your family finances as a business. Businesses fire people who do not maximize the value of the company.
Hold Quarterly Family Financial Meetings
While it’s imperative that you and your spouse hold a monthly budget meeting, it’s also important that, as the CFO for your family, you meet with your family on a quarterly basis to go over household finances. This is important for two reasons. First, it allows you to cover the components of your family’s vision to see how closely you are aligning yourself with your original vision. Second, you will foster open communication between you, your spouse, and your children. Children can learn habits by verbal reinforcement and observation. By observing your daily practices and knowing the family goals, they’ll soak in beneficial financial principles and hopefully one day emulate similar practices in their adult lives.
I thought that I knew a lot about finances before I started teaching my Reaching FIRE course. However, I learned that it’s one thing to have head knowledge and another to be able to teach in a clear and concise manner. Like a CFO during a conference call with investors, you should prepare yourself so that you can answer any questions that arise.
Create a Family Dividend System
In order to entice to get your “investors” (family members) to participate in achieving the success in your family’s finances, set up a dividend system that rewards the family for hitting goals.
For example, the company, Cal-Maine Foods, Inc., adjusts their dividends. You too can set the dividends to hit only if you receive certain metrics, which can slide according to how well your family does. These dividends should be tied to ideas, decisions, and implementation to lower expenses and increase savings in the long-run. This will facilitate the creation of family benchmarks each quarter and goals to strive towards.
Create a Long-Term Plan
While looking at day-to-day expenses is important, as the CFO, you also need to implement a long-term plan in order to reach your financial goals. This means investing long-term using Wealthfront, or learning how to invest on your own through Vanguard. Savings alone will not get you to where you want to be. Investing is key.
Make a Plan for Succession
At some point, you will need to turn over the financial management to someone else. Either a child or a spouse might need to take over eventually. While it’s not a pleasant thought, making plans to have a proper successor can prevent a lot of challenges in the future.
Additionally, each CFO should have their estate planning documents in order and an organized paper or electronic system. That way, your spouse or children can easily obtain the essential information they’ll need to continue CFO duties.
I’m definitely the CFO of the family. My wife would likely be the COO. We decided these roles to play into our individual strengths. Even with me as “CFO” we hold regular meetings (often weekly) for financial touch bases. (Mostly budget updates.)
Brad – Financial Life Planning recently posted…How 8 Key Investing Indexes Performed In The Past 10 Years
My wife is the CEO and I’m her financial advisor, I don’t even call myself the CFO at this point 🙂 That’s awesome that you all have the roles set up…
For me, my passion to manage my own finances naturally made a CFO when I got married. Coincidentally, I also appointed myself the CEO of the household (my wife may disputes this claim) as I also believe that a family’s finance should be efficiently run like a company.
As the CEO and CFO of my household, my goals are to ensure that our net worth is moving in the right direction and our expenses are less than our revenue (income). Most importantly, everyone in this organization has a responsibility and duty.
So far, we have not paid many dividends yet, but I am thinking of doing that as our finances have become more stable in recent years.
Leo T. Ly @ isaved5k.com recently posted…Can You Achieve Financial Success Without A Budget?
Hahhaa…I don’t even pretend to be the CEO. I know my wife is and when it comes to being the CFO, that’s her too. I’m just a financial advisor at this point 🙂
Great plan! Based on your description, I think I’m the CFO in our family since I handle all the finances.
I do consult with Mr. FAF about our investment such as 401k or buying a rental. If he strongly objects to something, I won’t do it.
We used to fight about money a lot after we got married. But now we are pretty much on the same page about everything. 😀
Ms. Frugal Asian Finance recently posted…My 12 Frugality Fantasies
That’s awesome to her Ms. FAF!!! My wife and I haven’t really fought about money, which I feel incredibly fortunate about. We also don’t have a lot of disposable income so that probably helps 🙂
I’m the CFO, but my wife is a key shareholder. 🙂
Seriously though, I like the idea of a vision and quarterly meetings. It’s important for everyone in the family to be on the same page financially as it is in an organization. It’s great for kids too in setting good financial habits.
Simple Money Man recently posted…Is Gifting Money Really That Bad?
Thanks for stopping by Simple Money Man!!! I totally agree that it’s super important to set a vision and get on the same page. If you don’t have goals, you don’t know where you’re going 🙂
I read that book about a year ago, great read. Like you said, that book describes on how to plan your family finances for the short and long term.
I’m the CFO of our family even though my wife is quite a saver. She doesn’t like to deal with the nitty gritty of crunching numbers like creating a monthly expense report and see how much we spend on each category. I, on the other hand, am more than happy to take that role and also deal with handling all of our various accounts we have together.
Kris recently posted…Expense Chronicles – April 2018, Street Cleaning Ticket and Diapers
It’s amazing to see how we gravitate towards people that balance our strengths and weaknesses. I personally hate the details and like the big picture where my wife loves the nitty gritty 🙂
You can retire at peace knowing your money will be handled by good financial advisers. Some financial advisers are really keen on making clients happy. This is a must and always a priority.
If you can find a good financial advisor I definitely agree, although finding a good one is trying at times.