FAMILY CFO: Taking the Reins on Your Finances After a Loss

Taking the Reins on Your Finances After a Loss

It is often just after the most difficult moment in one’s life when she is suddenly forced to take over responsibility for her own or her family’s finances. Whether it is due to the death of a spouse, parent or a divorce, women and sometimes men, who have not previously been responsible for financial management may be lost and alone in a world of decision making that they feel ill-equipped to handle. The first obstacle to overcome is fear. Money management can seem very daunting and overwhelming. You may not have much experience dealing with financial decisions alone and fear that you will make mistakes. However, you can overcome that fear with information. There are three essential parts to understanding your finances:


1- Part one is understanding your cash flow. It is the relationship between the money coming in each month from any/all sources and the money going out to pay for expenditures.
2- The second part is understanding your net worth. This is the sum of all       your money, bank accounts, investments, property and other assets  minus your debt (mortgages, loans, notes and credit card debt).
3- The final part is investing for the future for yourself and for your heirs.

 To understand your cash flow, examine any and all sources of inflow or income. If you don’t have income you will have to use assets (savings) or debt (like a credit card or borrowing money) to pay for outflows. Income may be from a variety of different sources for different people. You should know what all of your sources are of income are. These can be different for different people. Here are three very different scenarios:

• You may work for a large company and have a high salary and benefits to cover healthcare and certain expenses;
• Or you may be a divorced, unemployed Mother who’s income is              
completely comprised of alimony and child-support;
• You may be a retired widow who receives a portion of her husband’s         pension and income from stock dividends and other investments.

It is important to understand how much money you have coming in each month. The above examples represent three very different situations but in each one there is income to be considered as part of the cash flow.

Perhaps even more challenging than understanding your income is understanding: “where does it all go?” All of the monthly bills that you pay including; rent or mortgage payments, credit card payments, living expenses, taxes, insurance and anything else you spend money on are part of your outflows. If your outflows exceed your inflows then you will have to make up the difference either by using savings or by borrowing money, for example by using a credit card.

Paying bills can be a complex chore. Knowing which bills must be paid and when; setting up online bill payments and phone aps; and making decisions about which payments to make immediately and which to defer, require analysis and thought with consideration of tax issues and an understanding of interest and the time-value of money. Getting it right will have a huge impact on your financial comfort, ability to pay future bills and help determine wbillsplushat resources you will have for the future.

The next phase of understanding your financial position is calculating your net worth. To do this you must add up all of your savings, checking and retirement accounts, and the value of your assets (including insurance policies) and property. Then you must subtract any debt and loans. Obligations like a car lease are similar to a loan and must be counted against your assets. You may be wondering how this information is useful. Depending on what stage of life you are in this information is needed for a variety of purposes. Here are some examples:

• Dividing assets in a divorce
• Applying for and receiving credit or a loan
• Applying for financial aid or collage scholarships for children
• Making certain that estate planning documents are created to                  
properly manage distributions and tax issues after your death.
• Making appropriate decisions about investments and risk tolerance.

To fully understand your financial position it is necessary to know your net worth. Once you have an understanding of where you are (net worth) and what your needs are (cash flow) it is time to plan for your future goals.

Whether you are a 25 year old scraping together your first lump sum to invest or an 85-year-old widow who hopes to help pay for a great-grandchild’s college education, everyone has plans for the money they hope to have in the future. There are a wide variety of investment strategies and choices available to consider. Choosing among these investment opportunities can be very difficult. Risk tolerance, duration of investment, tax issues and personal preferences can all play a role in making investment decisions. Countless books and entire libraries are devoted to this topic.

You must decide who will manage your investments. There are three basic options. The first is to handle your investments on your own; The second is to manage your investments with some help from professionals; and the final option is to hiring a Personal Financial Advisor, like me, to oversee your complete financial picture and actively manage your investments. Deciding which route to take should be based on your knowledge, interest and available time.

For those who want to manage unassisted by professionals there are many resources that you can use to make financial decisions and websites where you can make your own stock trades. Without professional oversight it will be important to bear in mind tax consequences and the opportunity costs of various investments. Gains can be reversed quickly if you are not actively managing your portfolio on a daily basis. For minimal fees estate planning forms can be downloaded from the internet, however without professional review by an attorney it is difficult to be certain your wishes will be executed correctly.

Choosing to work with some professional assistance may involve many different scenarios. Stock brokers, accountants and attorneys can provide you with piecemeal services, as needed. This is appropriate if you lack the time or knowledge to manage completely on your own but requires that you coordinate the advice of different professionals and bring to each of their attention critical information from other members of your financial team that may have an impact.

Another thing to keep in mind is the difference between a professional who is a “Fiduciary” and one who is not. A Fiduciary has a special obligation under the law to serve their client’s best interests above their own. Stock brokers can give you advice and help you to manage your portfolio but they are not fiduciaries. Often times brokers are paid commissions or have directives from their company to promote certain investments. These may or may not be consistent with a client’s best interest. However Certified Financial Planners and Attorneys are fiduciaries and are thereby required to serve their client’s best interest.

If you choose instead to retain a Personal Financial Advisor, you should consider the range of services and professional credentials offered by any firm that you consider. At Personal Asset Strategies, Inc. we work closely with our clients’ other professionals, such as CPAs and attorneys to ensure that our client’s best interests are determined and strategies are implemented. For example, if an attorney recommends retitling assets and other strategies that require follow through, It is not the attorney’s job to follow up and make sure that the ‘leg-work’ is done. We as financial advisors handle the administrative end of executing the financial plan. We call our approach Collaborative Wealth Management. We provide synchronized financial management, in a manner similar to having a “family office”, which was once reserved for the ultra rich. We take a personal approach getting to know our client’s families and personal priorities that impact on their financial decisions during their lifetime and in their estate plan. We are fee-only planners which  means that we are paid a percentage based on the total assets that we manage. Because our fee is tied to the success of the client’s portfolios our interest is completely aligned with our client’s. We never charge commissions or sell any products.

Taking over your family’s finances is manageable even in the worst of circumstances. It takes time and effort which can be eased by relying on the assistance of experts and professionals

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