The following is an excerpt from Your Life & Your Money
Do what you can, with what you have, where you are.—THEODORE ROOSEVELT
Once you have a mission statement, you can start acting as your family’s CFO. The job has many dimensions, of course, but there are four basic rules:
Rule #1: Know Your Expenses
Familiarity with expenses is the CFO’s most important job. Think about it. If you don’t know how much money is going out, how will you know how much money to spend—or not to spend? People, businesses and governments get into fi nancial trouble when they don’t know exactly how much goes out each month. Unlike the government, however, you can’t print money when you’re in trouble or running a little short.
Can you imagine what would happen if a corporate CFO didn’t know how much his company was spending every month? He’d be fired. Well, if you’re the family CFO and you don’t know your monthly expenses, you’ll be fi red too. (It’s called divorce.)
Here’s how to start getting a handle on expenses.
Review the last three months of your check register and see where the money is going. Also, look at the last three months of credit card statements to see what you’re charging. Don’t plan the next three months of expenses until you get a clear idea of how much you and your spouse have been spending recently. This will give you a ballpark figure of what you can afford. If you pay quarterly, biannual or annual bills like homeowner’s insurance or association fees, for example, then divide those bills by the appropriate number to get as close as you can to figuring out your monthly expenditures.
Computer software can help get you expense house in order. Packages such as QuickBooks™ and Quicken™ can help you tally your monthly bills or expenditures and keep everything well organized. I like doing my family’s expenses on QuickBooks.
Rule #2: Analyze Your Expenses
After you have organized your expenses over the past three months, look at the biggest expenses fi rst. The number one expense is likely to be your mortgage payment or rent. If it’s a home mortgage, research your market frequently on the Internet to make sure you have the best interest rate possible. If you’re renting, check comparable rentals every three to four months to see if you can get a better deal elsewhere.
The next big expense may be car and homeowner’s insurance. Every six months, look for the best possible rates. Insurance rates vary significantly, and many insurance companies are very willing to save you money. Please don’t let your friendly relationship with your insurance agent get in the way of saving money. If you can get a better deal on the same coverage, say goodbye! Too many times I’ve had people who could be saving thousands of dollars on insurance over a couple of years’ time tell me that their insurance agent is a good friend or a family member, or that they’ve been with him or her too long, and don’t want to cause hurt feelings. Well, your insurance agent doesn’t pay your bills. Maybe you could give him or her a financial tip: Work for a more competitive insurance company!
Because you are now your family’s CFO, you get to fi re poor producers or people who cost you too much money. Do it tactfully, but fire away. Hire the insurance person, CPA and fi nancial advisor who’ll give you the best service and the best rates. They are out there if you do your due diligence and research.
Next, credit cards. Take a look at all the credit cards on your expense list. I am a fi rm believer in paying credit card bills in full each month. Buying what you can’t pay for is called living beyond your means. It’s delusional, so don’t do it.
If you have problems with credit card debt and would like to pay off the debt as soon as possible, then research credit card deals to find the lowest rate. Do this as often as you can. Always pay off cards with highest interest rate fi rst, then the next highest card, and so on.
I could write a book on how to lower your credit card debt, but that’s not what I aim to teach you here. This book is designed to give you your own personal blueprint to fi nancial success. It’s for you to get off your butt and not let someone else do the work. If you have a specific problem with credit card debt, fi nd a book, CD or other material to help. Don’t let mindless TV, Internet chat or other idle activities get in the way of this goal.
Other expenses. Since you probably look for the best price every time you shop for food, gas and clothing, apply that same tenacity to cell phone bills, cable expenses and everything else your household spends money on.
Once you pay off your last credit card balance, do the right thing from then on and charge only what you can pay off each month. Better yet, avoid credit cards altogether; pay cash whenever you can. Yes, that means the convenience of pulling out your credit card is over. Go to the ATM and keep yourself honest. Isn’t that what you would tell your kids to do?
My motto is, “A dollar saved is a dollar earned.” If you analyze every expense, you can’t help but start saving money.
Rule #3: Hold Regular Financial Meetings with Your Spouse or Yourself
During the first year of your term as CFO, you and your spouse should meet monthly for the first six months and then every two months until your “anniversary.” After that, meet with your spouse (or review your financial affairs yourself if you are single) once a quarter to make sure you are implementing your mission statement. You have to make sure everything is going according to plan. If it’s not, you can make adjustments so that you keep yourself and your spouse motivated and willing!
A great CFO always keeps the lines of communication open. Always ask your family members, “How can we save more money?” or “With all the money we’re saving, how should we invest or pay off unwanted debt?” Here’s an idea: Make one spouse the CEO and the other the CFO for the fi rst year. After that, switch roles so both can see what it’s like to be in charge of the expenses. The CEO’s job is to keep the mission statement on the table at all times and to display leadership. That means practicing what your mission statement is preaching. As a team player, the CEO can do research in conjunction with the CFO and help to lower expenses.
Rule #4: Institute a Family Reward System
To get everyone involved and demonstrate that the family CFO idea works, develop a bonus structure or reward system based on a portion of the family’s quarterly savings. Get the children involved since as shareholders they contribute to the family expenses and can help control them. Give them assignments with monthly or quarterly deadlines to research cell phone packages, for example, or to fi nd how (by taking shorter showers, for example) they can reduce water and fuel bills. Help them understand in a practical way that they can help lower most household expenditures.
Bonuses or rewards should go to those whose ideas and practices lower expenses. If you make the process fun and creative, you’ll get a lot more out of saving money than you ever imagined. Your activities will help your child develop a positive relationship with money and build confidence, reduce anxiety, and create a sustainable attitude of empowerment and well-being in your household.
Unlike shareholders, however, children don't really bring any extra cash to the help the company function or expand.
Posted by: Joe | September 03, 2010 at 01:17 AM