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5 Questions Everyone Needs To Be Able To Answer If They're Suddenly On Their Own Thumbnail

5 Questions Everyone Needs To Be Able To Answer If They're Suddenly On Their Own

Estate Planning Investment Planning Tax Planning Retirement Planning

When we talk with families, we usually see one spouse who is responsible for the family finances.  Even in households where there is a relatively equal distribution of child-raising, chores, and other tasks, it’s very rare for me to see such an equal arrangement with the family finances.  More often, I see that one spouse handles ALL of the finances, and the other spouse is pretty aloof. 

In order to get a better handle on this, we usually ask:  “Which one of you handles the finances?”  Once one of them raises their hand, I immediately ask the other spouse:

How would you handle the finances if something were to happen to your spouse?

The answers astound me.  On one hand, there are families who are very prepared.  One time, the husband went into his office, brought out a 3-inch binder, and told me (in front of his wife):  “All I have to do is die, and she’ll have everything she needs.”  Indeed, as I pored through this voluminous binder, copies of virtually every pertinent document were in the binder.  While I don’t know if his wife appreciated him talking about his demise in such a cavalier fashion, I was very impressed that this gentleman had taken the time to make such thorough arrangements.

For most people, the answer is usually a shoulder shrug and a sheepish, “I don’t know.”  And that’s a perfectly acceptable answer as long as you’re willing to admit it & take the proper steps to change that answer.  After all, ignoring a problem doesn’t make it go away, but it’s not a perfectly acceptable long-term answer. 

You don’t need to know ALL of the family finances.  For those of you who are married to investment junkies or folks who like to day-trade with their ‘play money’ account, you don’t need to know all that.  You don’t even need to pretend to know about investing.  You just need to know:

  • Enough about your basic finances to get through the current crisis
  • What steps to take as you prepare for that major life adjustment

In order to help you prepare, here are 5 questions that each of you should be able to answer if something happened to the spouse that handles all the finances. 

1. Where are all of my assets & liabilities?

Every family should have a list of:

  • All accounts with financial instruments.  This should cover banking accounts, investment accounts, retirement accounts, and college savings accounts.   Make sure you include account numbers.
  • Any financial instruments that reside outside of accounts.  This would be things like savings bonds, CDs, stock certificates, cash. 
  • Insurance policies & annuities.  
  • Property records.  This includes real property & personal property (such as cars).  If you have to pay taxes on it, you should have it on this list.
  • High-value items.  It should be up to each family to define ‘high-value.’  In our family, we keep track of our collectibles & jewelry, as well as anything else worth over $1,000. 
  • Estate planning documents.
  • Safe deposit boxes & PO Boxes.  

Additionally, each of you should have a list of all the different bills, how they’re paid, and when they’re due each month (or quarter or year, as the case may be). 

This is usually the area where spouses are most likely to burden share, it’s vitally important that each spouse knows what the other one is doing, and how to handle this responsibility. 

2. How long can I live on my current savings before I need to make serious changes?

This hints at the importance of an emergency savings fund.  If something happens to the spouse in charge of the finances, then it’s an emergency!  But it’s easier to get through that crisis when you have some financial stability.

Let’s imagine that you’re the spouse who knows nothing about the finances.  But you’ve got $30,000 in the bank, and you know your household expenses are roughly $5,000 per month, including your mortgage.  That gives you about 6 months of cushion.  You will eventually have to sit down and figure out your long-term plan.  But you can keep paying the bills for the next few months as you figure it out.

What if you only had $3,000 in the bank?  Now you’ve got to figure out how that next mortgage payment is going to happen. 

Most people overlook this because they have life insurance policies.  But keep in mind:

  • There are situations where life insurance doesn’t apply.  Sudden hospitalizations & lengthy illnesses are two examples.
  • If there is a death, you still need to have cash available for emergency expenses until the life insurance policy pays out.

3. Is my estate plan up to date?

Many people think that if you’re by yourself, you don’t really need to have an estate plan.  After all, if your family isn’t that complex, then everything will just happen the way you intended.  Here are a couple of problems with that.

First, what if your family situation is a little more complex than you believe it to be?  For example, if your only relative is your adult child, then it’s pretty easy to just say that they’ll get everything.  But what if you’re divorced?  If you have a life insurance policy that you never bothered to update, then those proceeds would probably go to your ex-spouse.  That might be a concern.

Second, and more important, is the question of what happens if you’re still alive, but incapacitated?  If you’ve never bothered to update your will, odds are you probably haven’t updated any medical directives or powers of attorney.  Assuming you had those documents in the first place. 

So you need to make sure that updating your estate plan is high on your list.

4. What else do I need help with?

It’s okay to admit that you need help.  Everyone needs help with something.  Even the best barbers still have to hire someone to cut their hair. 

So if you have financial questions, that’s okay.  What’s not okay is to ignore those questions and pretend that those situations will never come up.

Instead, you should take a look at your entire financial picture.  Write down a list of everything that you’re clear on.  For example, you might be very good at keeping tabs on your spending.  Or you might be pretty confident that you’ve got good car & home insurance.  Just write down everything that you’re confident about.

Then, write down all the questions you have.  Or, if not questions, then topics that you have no idea about.  This could be as vague as, “Do I have enough money for retirement,” or as specific as, “What changes do I need to make in my investment portfolio in the next 3 months?”  Whatever the question or uncertainty is, write it down.

5. Who do I turn to for help?

Once you’ve written down the things that you’re confident about or that you have questions about, you should ask yourself, “Do I want to take the time to educate myself and ensure that I’m making the right decisions?”  If the answer is “Yes,” that’s perfectly okay!  It can seem daunting, but plenty of people DIY their personal finances and are happy.  However, most people who succeed in managing their own finances are the ones who:

  • Truly have a passion for learning personal finances
  • Have the time to learn
  • Are willing to do the work
  • Have confidence in their decisions

If you don’t have all four of these, you might want to look for a trusted financial planner who can sit with you, help you understand your finances, and take steps to secure your financial future.  Here are some ideas on how to find that trusted financial planner.

  • NAPFA:  The National Association of Personal Financial Advisors is the worlds largest organization of fee-only financial planners.  NAPFA’s goal is to connect people with professional financial planners who act in a fiduciary manner.  You can search for a planner by location, specialty, fee structure, or area of focus.
  • Talk to your own trusted professional.  If you are already working with a lawyer or accountant, odds are that they probably have relationships with trusted financial planners.  Ask them for a referral.
  • Talk to your friends and family.  Same here.  If your close friends or family members are already working with someone they trust, why wouldn’t you want to work with them?

And if all else fails, contact us.  We will help you outline the next steps to put you on the path to success.

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The foregoing content reflects the opinions of Lawrence Financial Planning, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. 
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