Question: I want to prioritize my family’s financial habits and start making smarter decisions. Do you have any tips or strategies for family finances?
AN: The best advice we can give you is to start managing your individual and family finances the same way you would a business. Most people don’t think of themselves as “businesses” trying to make a profit. Looking at your financial situation from this perspective can be helpful in determining where you could cut costs, increase cash flow, and generally improve your personal financial situation. It can be especially beneficial if you anticipate a major financial commitment in your future, such as buying a home or starting an actual business. Here are some tips.
examine your financesWhere an executive might look up financial statements to get a read on the company’s position, they can create or update a personal net worth statement. Essentially a monetary scorecard, a net worth statement shows where you stand financially and whether you’re on track to meet your short-term and long-term goals.
You can calculate your net worth by summing up the current value of all your assets, including cash and cash equivalents, brokerage account balances, retirement funds, real estate and other fixed assets, and personal property. Then subtract your liabilities, including mortgages, personal loans, credit card balances, and taxes owed. The difference between the total value of your assets and your liabilities is your net worth.
Another very important calculation in business terms is your “Cash Flow Statement.” Creating this statement is simply determining the monthly net cash inflows you receive from take-home pay (after taxes withheld), dividend and interest income, rental income, etc. minus your monthly cash outflows, such as loan payments, food expenses, clothing, education costs, taxes, etc. Creating a cash flow statement that compares your monthly cash inflows and outflows provides important clues about where your money is going and how you might be able to cut spending and increase your savings. Are you relying on credit cards with high interest rates? Could you cut food or entertainment costs? These are just a few questions you need to answer to better understand how sometimes even small changes in your spending habits make a big difference. Wealth is created not so much by what you do as by what you keep.
Practice stronger risk management. To maintain the financial health of their companies, business executives also practice risk management. You can do the same thing by first evaluating your compensation and benefits choices. A major life change, such as a marriage or birth, may require an update of your W-4 withholding allowances with your employer.
Unexpected medical costs can turn into a financial catastrophe if you’re not prepared. Review your health and disability insurance to make sure you’re providing the best value. If you have a health savings account or flexible spending account, be sure to use it to its maximum benefit.
Also think about other insurance. Perhaps your home has increased in value, requiring a corresponding increase in homeowners coverage. Perhaps you no longer have enough life insurance to protect your growing family. Your insurance professional should be able to help you identify the correct amount of coverage.
Finally, proactively check your credit report. If you wait until something is obviously wrong, it may be too late to prevent significant damage. Federal law requires all three major credit reporting agencies to provide you with one free report each year. To take advantage of.
think about retirement. Business owners need to think about succession planning. But even if you don’t own a business, you need to think about life after employment.
If your employer allows you to adjust your retirement plan contributions during the year, consider increasing them to take full advantage of tax-deferred compounding and, if available, employer matching. Similarly, if you plan to make an IRA contribution this year, do so as soon as possible so your assets have more time to grow.
Review your estate plan and, if necessary, update it. Financial priorities change, so make sure the beneficiary designations for your retirement accounts and insurance policies continue to match your wishes. Check your will or living trust and change it as needed.
start rolling. It’s never too late to practice good financial habits and take control of your current net worth so you can take proactive steps to make changes that will build wealth for you and your family. If this is too daunting to do yourself, contact a trusted CPA or certified financial planner knowledgeable in these matters to help you get started.
Crystal Faulkner is a Cincinnati market leader with MCM CPAs & Advisors, a CPA and advisory firm that provides expert guidance and thinking beyond the bottom line for today’s public and private companies, large and small, not-for-profit. , government entities and individuals. Tom Cooney works with Wealth Dimensions, an investment advisory firm. For additional information, call 513-768-6796 or visit online at mcmcpa.com. You can hear Tom and Crystal every day on WMKV and WLHS on “BusinessWise,” a morning and evening radio show that profiles highly successful people, companies, organizations, and issues throughout our region.