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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.