Last month we wrote about how it is important that your family be in the know about your financial status and managing it in your absence. For this month, let’s talk about something a lot of us can be somewhat uncomfortable with - including our families in the financial decision-making process.
Culturally, it’s been frowned upon to discuss money matters with our family. Times change and as the overall knowledge and inclusiveness increases, how and what we communicate with our families also changes.
Money, for instance, is no more something to be discussed in hushed tones only when absolutely necessary. Bollywood has created a trope, in earlier decades, out of the hapless husband who informs his wife that suddenly they are under debt worth crores and have to leave their family mansion. The wife - as is expected - is shocked.
That’s quite avoidable in 2020. But talking money with the family needs a planned approach if you want to avoid confusion and the wrong outcomes. Let’s approach this in a three-pronged manner.
Just as we mentioned in the last article, your family definitely needs to be aware of where all the key financial documents are and about the overall state of the family’s finances. From a family budgeting point of view, ensure the following:
- Share details of large expenses
The definition of what constitutes a large expense can keep changing, however, partners in a marriage will have a sense; things like jewellery, luxury watches, premium smartphones will surely make the cut. Be honest about the big spends and make a conscious effort to inform your partner beforehand.
An inability to do so can put other monthly payouts like loan repayments or SIP instalments at peril. Also, hiding too many large spends leads to a sense of distrust among partners. Lastly, sharing information can help you understand each other’s preferences around spending habits and create a better understanding of important expenses that are yet to happen.
A smart way out is to simply plan for your big expenses and create a fund for the same beforehand. It would also be a good idea to check your ability to afford a large expense.
This becomes critical when it comes to matters like spending on children and their higher education or buying assets. Your partner may be more cautious in money matters and prefer a savings heavy approach, whereas, you may think it's okay to indulge once in a while. This difference in attitude towards money makes it imperative to share and communicate details of those big spends.
- Do a monthly review
Knowing where you are financially each month is a great way for the family to work together, towards financial goals. This means doing a monthly review of your expenses vs the budget allocated. For this exercise, focus especially on big and extraordinary expenses. Mistakes will happen but knowing that you made one will help you avoid it in the future.
- Talking Savings
Savings is a family goal irrespective of your spouse earning or not. More often than not where both the husband and wife are working, lifestyle expenses can go up without a commensurate increase in savings.
Since the vast majority of financial goals are for the sake of the family - retirement for you and your spouse, education funding for your children - there needs to be a collaborative approach to saving for them as well.
As a Defence services professional, you can save a lot as a family if your spouse and children have a mission-centric approach towards your joint financial goals. This means agreeing to savings goals together as a family after understanding non-negotiable expenses.
Your savings goal needs to take into account your key financial objectives such as planning for your child’s higher education and supporting your life-style post-retirement (considering you have a pension to rely upon). Discuss this together as a family. You can also include your teenage children in this discussion to give them an early primer on personal finance.
Army kids can be quite disconnected from the world of money management as most of them lead lives inside a relatively egalitarian and sanitised cantonment and go to Army Schools or Kendriya Vidyalayas. The self-contained world they live in rarely requires using money, in contrast to the civilian world where both wealth and poverty can be seen quite starkly.
Helping them understand the value of money and savings will help avoid a cognitive shock when they leave this protected world and step into college.
- Talking Debt
Debt can be a major reason for discord within a family especially if one member is unaware of the debts taken by another. With easy credit available through credit cards and personal loans it is essential to discuss with your spouse, the kinds of debt that both of you agree on. This could be the loan you have taken or intend to take to buy your house in the city you want to settle down in.
Ensuring that there is transparency when it comes to the usage of credit cards by either spouse can prevent future conflicts.
- Talking Investments
When talking about investments, you can approach the conversations from the following angles:
- How are we going to achieve our objectives that are years away - Here you can discuss the value of making equity investments.
- How are we going to achieve our short term objectives, such as the international vacation being planned - Here you can talk about your savings and fixed-income investments.
Talking about equity or debt and asset allocation without context will simply bore people. Discuss your investment plans keeping in mind what they are designed to achieve.
For example, you can show how a regular SIP in a portfolio of good equity mutual funds can provide the added boost to your pension, and thus ensuring you won’t ever be limited to a hand-to-mouth existence, retired or not.
Speak to a financial advisor as a family if you aren’t confident of making these decisions by yourself. The most important thing is to understand that any investments you make, you make as a family.