Without knowing what is happening economically, one is living on pure luck and chance. The family that is really focused on moving forward knows every penny that comes in and every penny that comes out. The monitoring can be done through many means ranging from a paper spreadsheet to an app on the phone. The technique will vary from family to family.
The principal matter is knowing how much money the home is generating. That means a conversation with all the income earners. Information sharing, access to accounts, regular meetings to discuss monetary policies of the home, and also teaching one another money skills. It is a complete package.
In the early days of financial self help, it was all about the budget. Some used the envelope method, others used the spreadsheet, others used counselors (this site supports strongly the use of a qualified financial adviser who is specialized in the types of goals your family has).
Once all the cash-flow questions are answered, then and only then can a sustainable plan be created. A budget or spending plan can’t be well designed if there are hidden expenses or hidden accounts or hidden income. However much disclosure the couple has agreed upon will determine the kind of advice they need to seek out. Not everyone needs to have absolute full discloser between themselves… however… if you’re asking yourself if you’re that kind of couple, the answer is no. You need more disclosure between you and your spouse, not less.
In this stage, debt management is critical. Savings goals have to be set. Investment choices will eventually become paramount. Note: retirement savings is part of savings goals not investment choices… despite having an investment component Without having debt handled and savings set in place, it is difficult to successfully have an investment strategy that will work well for the family. Not saying it can’t be done, but having debt makes it harder to get where you need to get.
This is the stage where knowledge is power. This is where being honest and transparent earns you the most amount of trust. This is where the trajectory of the home can have significant impact. This is the stage you have to make sure is working right. Keep in mind, just because you’ve figured it out once doesn’t mean you’re good to go. This is the stage that gets the most amount of attention and upkeep as life changes. This is where adaptation happens to all manners of uncertainty.
The simplest way to explain the start of this stage is this… every single year, Christmas catches many people off-guard economically. Yet, every single year, history repeats itself. The wise learns and improves. What prevents a person from setting aside cash for the following Christmas? It is work that doesn’t have instant rewards.
The Platform Stage is where you start to plan for the predictable and the uncertain. This is the savings area. This is the planning ahead area. This is the stage that requires discipline. This is the part that is work that seems to have no rewards.
However, having had a full year to prepare for birthdays that are important to you, car maintenance plans paid for in advance, family trip financed before the flight is purchased, the graduation celebration planned and saved for years in advance. This here is where families start to build wealth and differentiate themselves from those without plans.
It goes even as far as saving up for replacing appliances in the home, the car in the garage, the roofing, the clothing worn to work. That is how one stays out of debt. This is how one gets the retirement home as well as the vacation home. Save in advance.
By the way, having clear goals to save to makes it easier to get to them. Here is the reasoning. To think of saving several million dollars for retirement makes very little motivational sense for most people. However, knowing you’re putting $100 a month aside for retirement (by the way, that number is very low and works better for someone who is very young and early in their career)is much more doable than scrambling to put several thousands aside in later life.
Furthermore, it is more fun to save five grand for a family trip in a year than trying to pay off that money off a credit card after the trip. The former can be made into a game… like how fast can you get to the goal… the winner (person who raised their share of the savings the fastest) getting to decide something special to do on the trip. The ladder is just drudgery that has to be paid… with interest!
This is the stage where life is most distracting and throws people off their plan if they’re not clear on why they’re savings so much. Knowing you have 260,000 in the bank with no plan is too tempting to be spent… but knowing that the amount covers a vacation, a new car, a new home, a college degree, etc, means you’re less likely to touch it accidentally.
This third stage is where hard choices are made when the middle stage is skipped. No one wants to spend their time living in a sterile nursing home waiting for the end. Most want to spend their time with family and enjoying memories. Without a plan for that, the choices get painful fast. Some have destroyed the finances of their children through many guilt trips just to make up for their poor lifetime of choices.
In the legacy phase, this is where one reaps the rewards of their choices. Sure, there are more sophisticated options left to uncover and make if one has the finance to do so. However, many are still paying off the debt of the past at this stage when income starts to contract and go away. Few will scale back their standard of living to keep up with the decreasing income… or not scale back fast enough.
Worse, this stage is somewhat unpleasant. It means talking about final wishes and preparing wills as well as choice of power of attorney. Not the kind of dinner table chat most want to ever talk about. However important it is.
This is also the place where legacy is paid forward. Some have made estate plans so that when they’re gone, their local church that they’ve been a part of gets their estate to help provide for those who are in need. Imagine living close to your church for forty years. Now the neighborhood is expensive real estate. The church needs housing for other senior citizens. You’ve got no children who need your home. Having the church benefit of that property is a great legacy to have.
There are many other examples to pick from, but the church idea was the first to mind. The alternative is less pretty. In many municipalities, not having a plan for your estate means that the state will take your estate to do as they see fit. It is free money for them. They’re not going to go through the troubles in probate to find your next of kin who has left the country decades ago. Sure they’ll attempt. But, why leave it to chance of the hearts of politicians who don’t even know you (assuming you’re the average reader who isn’t close to their political officers)
In this stage, one can very well use the additional time available from being in retirement to teach the coming generation about how to make better economic choices. I’m sure the children and grandchildren can learn a thing or two from a lifetime of experiences you’ve had. This is part of passing on a legacy.
This stage also involves a lot more conversations with financial experts as there are many moving pieces to consider. One of which is relatively new to the human race. The digital foot print of a person and family. What happens to that? Who takes control of it? How does the fine print work with transitioning financial accounts as well as social media accounts into the estate and to the next generation?
These are the hard questions (amongst many many more) that needs considerations before you’re no longer able to express your wishes. Now is the ideal time to set time aside to plan and prepare.