Financial goals of the family: It takes two to tango
Recently, while doing a television show on personal finance, I said couples, especially in double-income families, should align their perspectives so that they can achieve financial success. Some asked why must we compartmentalize a family’s financial affairs to this level? The answer is that over the past several years, I have noticed many couples drift apart due to lack of consensus on the subject of money. Both the spouses stand for their values, financial independence and a long-term career. Therefore, it is important that not only are their goals aligned but also the approach.
Here are a few suggestions to bring such couples to a level where they can take responsibility and accountability for their financial well-being.
•Knowledge is relative: Accept the fact that one partner is likely to know less than the other about financial keywords, investment products, insurance and tax efficiency. However, that does not make the less-aware person less important. Whether it is children’s upbringing, supporting parents, or even supporting each other, only a couple with strong bonds in all aspects will stay together despite the differences. We must remember that the person who is less financially savvy may not be less significant when the family is passing through difficult times. A person can always be solution-centric, irrespective of financial knowledge.
•Different personalities: Accept the fact that we as individuals are also an outcome of the money environment we have experienced—challenges we saw our parents go through, financial ups and downs during our careers, and the work environment that we have been part of. The personalities of the spouses, when it comes to money management, can be completely contrary. Couples need to accept this. If it’s difficult to have money conversations, rope in an expert. Remember that the family’s well-being has both of you as part of the solution.
•Money rituals can bring about behavioural change: Make it a habit to discuss money and take actions periodically. Even if it’s boring, you need to identify the areas of interest and ease. Identify how both of you will jointly contribute to expenses, investments and financial goals. If you are unable to have such discussions effectively, you can take the help of professionals who can make the discussions compelling for both the partners and establish a pattern for them with respect to earnings, expenses, savings and investments. Don’t avoid money conversations because they lead to fireworks. If you respect the other person’s viewpoint, the discussion is likely to end with conclusive next-steps. Also, discuss money with children objectively, keeping in mind their capabilities to understand the subject. Help them learn about savings, banking, earning for the chores they do, spending from their piggy banks and respecting money.
•Have a shared vision: Once the money conversations are free from conflict, the couple can sit together and write down their vision—say, 3, 5 and 10 years down the line. This is likely to fail in the first few attempts. However, if you create an environment of encouragement and accountability, you will succeed. One parent may want to send the child to a college overseas while the other may want the child to study in India. The wife may want to retire at 45 but the husband may want her to continue because he is cherishing a dream to be an entrepreneur while she provides cash-flow stability. One partner may choose to have two houses while the other wants just one house and the rest of the money in financial assets.
If you can agree to create a shared vision for your family and contribute to achieve these, you are likely to have stronger and positive outcomes in your financial life.
•Actionable steps: Once aligned on goals, review your documents. Keep them accessible. Maintain a spreadsheet for cash-flow planning, expense planning and investment tracking. Establish the flow of money across accounts for expenses and investments. Establish a contribution model and an investment model. Identify home loan ownership and loan pre-payment proportions. Do not mix office expenses with personal ones while using accounts and credit cards. Build a strong insurance framework for each partner as both are important for the family’s well-being. And if all this is daunting you, engage an expert who will help you through the various steps.
•Track the progress: As a couple, both of you should review your progress periodically. Establish priorities for the coming year. Align your actions to the plan derived from the common vision. These could be decisions such as: redeeming funds, buying new assets, insurance, nominations, loan foreclosures and evaluating taxes. If you achieve a set of financial goals, move on to the other set that is yet to be achieved. Iterate through the process until all goals are marked complete. These action items may take long but will surely be worth your time. Remember, what matters is how your money worked for you rather than how you worked for it.
Amit Kukreja is a registered investment adviser, and founder Amitkukreja.com.