How to Paint your Financial Future
By Elizabeth Summers CFP FMA FCSI
If you close your eyes, you cannot see your credit card bill.
Or your bank account.
Neither can you see where you are going. The dark is quite a scary place; especially if there are two people trying to find their way through the same set of finances.
If you open your eyes, maybe just a tiny bit at first, and review your current situation and your goals, you will start to see where you are heading financially. It might not be a pretty picture now but you can start to see the choices that lie ahead. Everyone has options because there really is no black and white when it comes to finances. However, many of us miss this point because we do not know our financial selves very well at all.
Consider the client whose first comment to me was “I hate debt. I want to use this windfall to pay off my mortgage”. Why did he then turn around at the end of our planning session and ask “Should I really pay down the mortgage or should I maybe invest the extra money?”
The reason he asked this question is because he heard it on the radio, or read it in the paper, or heard it from Miss Moneybags at her daily water cooler lecture. “I did this so everyone else should do it too” she says. She is smart. However, she is not you. She does not walk in your shoes and she does not live your life, nor does she have the same goals as you.
So how do you approach your finances from a truly personal point of view?
My recommendation would be to first sit down with pencil and paper and list your goals. If you have a significant other, this is a much less dangerous starting position than the threatening finger-pointing that can begin some family financial discussions, such as “let’s see what YOU can trim”.
So this kindly pencil might list:
- get rid of the credit card debt,
- buy an old car to fix up,
- take a course on watercolour painting,
- move to Hawaii,
- send all the grandchildren to Harvard...
- (insert wild dreams and practical wishes here)
This is nothing more than a paper list, so it is not dangerous, it is not threatening and it is not a source of argument because it encompasses everyone’s vision.
On the other side of this exercise is responsibility. If you did not list it, it does not get consideration. If you did list it, you have to be prepared to work a little to achieve it.
For example, a couple who have chosen to live on a single income have the following on their list: buy a new tablecloth without stains, get new quilts for when we have visitors, drive to Maine (Orchard Beach), replace our winter gear, get skates for the kids, replace the power drill, replace the car with something with a bit more pep. Creating a list can be quite a bonding exercise.
The next thing to do with this list of goals is to divide them into three groups:
Short term (1 -3 years),
Mid term (4-6 years) and
Long term (7 years plus).
Does this sound familiar? It is very similar to a career discussion, but probably even more important as this will apply to you 24/7 for the rest of your wonderful, exciting, comfortable life.
The final part of this exercise is to ascribe a cost to each item.
Once this is done, one of the biggest mistakes in family finance is potentially erased: the practice of spending the same dollar over and over again.
What is the first thing that can happen if you find you have spare cash? Two different minds could have two different ideas on how it should be spent. If one person’s wishes are realized, they may feel guilty and suggest that the other idea be bought as well, but it would have to be bought with plastic since the cash has been spent. Credit cards allow people to take the waiting out of wanting.
If you both have the same agreed-upon goals, this likely won’t happen.
The list of goals is really an accomplishment list. As you cross off the shorter-term goals, you then feel empowered to tackle the longer-term goals. And, as the short-term goals are achieved, there will then be money to spare for the longer-term goals.
Family finance exercises definitely require teamwork. You might find that one is a visionary and the other a detailed person. There might be two who are so similar they cannot decide on who will pick up the kindly pencil and do the writing! But this exercise will really help to get to know each other and what is important to each person. As a result, even though only one person can actually manage the finances at any one time, the other will have confidence that their wishes have been heard.
This is the first of a three part series on how to look at your finances without arguments. Feedback is always welcome. You can contact me through my website with your questions, queries or comments.
Stay tuned for “How to take a Financial Snap Shot of your Present”.
And then, best of all, “How to Connect the Dots and Succeed”
“Money Makes a Good Servant but a Bad Master” attributed to Sir Francis Bacon (1561 – 1626).
This article was prepared for Elizabeth Summers, who is a Financial Planner with TD Waterhouse Financial Planning, a division of TD Waterhouse Canada Inc. and a subsidiary of The Toronto-Dominion Bank. TD Waterhouse Canada Inc. – Member of the Canadian Investor Protection Fund