Most couples talk about where to live, how many children to have, where to go on vacation and even what series to watch on Sunday, but rarely do they talk in the same detail about how money is managed that makes all those decisions possible. As a consequence, it is common to find homes with good income and reasonable investments that would be in serious trouble if there were no person handling the finances, even for a time. In this edition of Pocket Financewe are going to review some fundamental topics to address financial issues with the family in a healthier way.
Vulnerability appears when the family’s financial rules exist in practice (who pays what, where they save, who decides what to do). investment) but they were never said out loud, and when all the knowledge about money remains in the hands of a single member.
The classic “I’ll take care of the money” is usually presented as an efficient solution, and on a day-to-day basis it probably is, although from a risk point of view it makes that person a single point of failure (a single point of failure, that is, a link that if it stops working drags down the entire system).
The starting point is a complete inventory, which goes well beyond bank accounts and the broker. In a typical family, the assets are usually distributed among some propertyand vehicle, dollars kept at home or in a safe deposit box, fixed terms, common funds, perhaps an account abroad, while on the other side are the cards, credits and money that we lend to a brother or a friend, which only appears in the memory of the person who lent it.
But this inventory is of little use if it does not distinguish between the economic ownership of a good and the operational control about him. The fact that the house belongs to both of them does not guarantee that both know how it is deeded or where the deed is, and that there are savings does not imply that both know in what currency, in what entity and under what jurisdiction they are deposited. To measure this risk, it is worth asking what would happen if one of the two were to leave the financial equation tomorrow, and not just due to death, because a prolonged illness, a long trip, a separation or a temporary inability to make decisions produce the same practical effect.
In any of these cases, even if the assets remain intact, the family may spend weeks or months without being able to dispose of it. A first practical step is to review ownership: if the bank accounts and investment are in the name of only one or both, who appears as beneficiaries in the life insurance and if there is any power so that the other can act in case of need. These are procedures that are resolved in a few days and, if necessary, save months of procedures as well as uncomfortable moments.
The second front is spending, where the most frequent mistake is distributing only what is visible. Rent or expenses, supermarket, school and services They are usually well identified, while vacations, house repairs, gifts, annual taxes, cell phone replacement or car service appear irregularly and end up being financed with whatever is on hand that month and many times, with the card in installments.
That is why it is advisable to go one step beyond the monthly budget and build the annual cost of the family. That number is usually much higher than the one each member has in their head, and it should be recalculated at least twice a year.
With the annual cost in view, the next step is to separate it into three groups: The common expense It is what sustains the structure of the home, individual spending is what each adult decides about their own money without being accountable, and the future spending already committed includes what has not yet been paid but will arrive with enough certainty, such as the university fee in a few years, the change of car, a move or that renovation that has been postponed.
Once this separation is made, it becomes clear what standard of living the family can sustain with its current income and what part depends on non-recurring income (an end-of-year bonus, a one-time sale, a inheritance), of debt or directly from consuming capital. From there, discussing who spent the most in the month makes much less sense than agreeing on what expenses are going to be supported and with what income.
The third front adds the next generation. Parents often talk to their children about the importance of study, work and savebut unfortunately there are very few who explain how the family’s assets work. The question is to decide what information each child needs according to their age: to a ten-year-old boy it is enough to explain that the family’s savings are distributed in different places and why, while to a teenager you can already show him how household expenses are paid.
Added to that is something that has a name: implicit inheritancethat is, everything that children receive without anyone having discussed what it means, from education and contacts to help with the first rental or the use of a family property.
Savings. Photo: El País Archive.
In recent years there has also appeared a digital layerbecause online investment accounts, wallets, emails, subscriptions, domains and files in the cloud are part of the assets without appearing in any public registry, so if no one knows they exist, in practice they are lost.
A tool that may be useful is a family heritage mapa simple document that lists institutions, assets, debts, insurance, where the important papers are (deeds, policies, will if any) and what the procedure is to access each thing. Although passwords and seed phrases should not appear there, because what is recorded is where they are stored and who can access them. In the case of cryptocurrencies, there are schemes such as multisig wallets (which require more than one signature to move funds) that distribute access without concentrating it on a single person. It is advisable to review this map at least once a year, or every time you open an account or purchase a new asset.
In addition to the bad investments, A family’s assets deteriorate due to ignorance, duplicate expenses, incompatible decisions, lack of liquidity at the wrong time or a poorly prepared succession.
The cost of this information being concentrated in a single head is even greater, because no bank summary will reveal its existence.
A fundamental part of achieving healthier finances at home is being able to talk about it without mysteries. Planning expenses with detailed figures can save us headaches, unnecessary expenses and even possible discussions due to lack of organization.
None of these conversations require an advisor or a sophisticated software: It is enough to dedicate some time and organization to it. To do this, it is important to define the priorities of each family and the most urgent expenses of the month; together and for each member.
The exercise begins by analyzing how much we really have, how much we owe, how much a year of life costs us, what would happen to the home finances if one of us stopped generating income tomorrow and if the other could manage everything without having to go out and find out where everything is. If any of those answers take a while to appear, you have already identified where to start ordering. That is why it is important that the organization does not fall on a single core member.
The Nation/ GDA
Source: www.elpais.com.uy
