5 Things You Need to Know About Your Money

Once there was a doctor who married a lawyer. They had a wonderful life together, traveling the world, living in a lovely home, driving beautiful cars. They made money (lots), they spent money (also lots), but they didn’t talk about money.



Then one day the lawyer was diagnosed with cancer. In a year, he was dead, and his wife discovered that she owed millions of dollars in bills and was about to lose her home.



This, says Candace Bahr, the real-life financial advisor who tried to help this real-life woman, is why when it comes to money, “both of you need to be involved.”



Bahr manages more than $100 million in assets on behalf of her Southern California clients, and is co-founder of the Women’s Institute for Financial Education (WIFE), a national organization devoted to helping women learn about money matters. Maintaining healthy finances, she says, is much like maintaining a healthy weight. We have a pretty good idea what we need to do, but we’d rather not face it. Many couples designate financial duties to one spouse or partner, and then generally don’t think about money management much.



Ignoring your money, however, even if you have a spouse who handles the family finances, is not a good idea. “Bad things can happen to you that you don’t know about,” says Janet Bodnar, editor of Kiplinger’s Personal Finance magazine and a nationally recognized finance expert. You could discover that your spouse hasn’t purchased life insurance, hasn’t been paying the bills, or botched your investment strategy. “Your spouse might not be as knowledgeable about money as you think,” Bodnar says.



The only way to really know what’s going on with your money is to find out the following:



1. How much do you have, and how much do you owe?

Bahr and Bodnar advocate sitting down with your partner to review your financial situation at least once a year. Bahr equates it with getting on the scale at the beginning of a weight-loss effort. And since it’s time to begin rounding up information for filing your income taxes, this is the perfect time to do it. As you gather up bank statements and investment documents, stop and read them.



Your goal is to add up all of your assets, including savings, investments, insurance policies, and the value of your home and cars.



Next, add up the outstanding balance on your mortgage, car loans, credit cards, and any other debts you might be carrying. This is something Bodnar says you should keep tabs on by reviewing your bank and credit-card statements every month – even if you aren’t the one paying the bills.



Bodnar also advises getting a copy of your credit report (and your spouse’s) at www.annualcreditreport.com. This official website created by the three nationwide consumer credit reporting companies entitles you to one free report each year from each of them. Beware other credit reporting sites, which are set up to try to sell you financial services, Bodnar says.



2. How much is coming in and going out? 

Now move on to examining your income and expenses. Along with all of your other tax information, in January you should receive W-2 forms showing the wages you brought in last year. Do a little math, or just pull current pay stubs, to add up your monthly income. Include income from investments, and other money you have coming in, so that you have a grand total of what you bring in each month.



Next, look at how much you are spending. Review the last six months of transactions from your checking account, says certified financial planner Barry Mendelson, founder of Elevation Wealth Management in Walnut Creek and member of the Financial Planning Association, a national industry alliance. Look at how much you take out each month and where the money went.



If you’re paying credit-card bills or other debt, make sure that what you pay each month is greater than what you’re being charged in interest. This way, at least some of your payment is being put toward paying down your actual debt (the principal).



3. What are your financial goals, and how will you reach them?

Once you’ve figured out what funds you have available, think about what you’d like to do with them. Bodnar suggests that couples talk about this on a regular basis, to make sure one of you isn’t tucking away cash for a new computer while the other dreams of a European vacation.

If you’ve answered questions 1 and 2, you can create what Mendelson calls a Personal Financial Statement. “Companies do this, financial planners do it for their clients, and families can easily do it as well,” he says. Here’s how:



• First, list your assets and subtract what you owe to calculate your Net Worth.



• Then, list your income (after taxes) and subtract your expenses to create your Income Statement. This will show you how much you have to invest in your goals.



Do you have savings? You should. Ideally, experts say we should all be saving 10 to 15 percent of our income – and that’s for retirement alone. “If you aren’t there, start where you are and try and build,” advises Bahr.



For shorter-term goals, Bodnar suggests getting your bank to make an automatic transfer from checking to savings each time your paycheck is deposited, so that you never see the cash. You’ll adjust to the slightly smaller paycheck, and you’ll feel better about spending the money you have available because you know that your savings is being taken care of.



Can’t find the cash to put into savings? Go over that checking statement again. “I bet you’ll find a couple hundred dollars of expenditures each month that, in hindsight, didn’t provide you the value or happiness you thought they would when you made them,” says Mendelson. “If you can cut a few of those out each month, save or invest the difference, then you’re on your way to achieving your financial goals.”



4. What is your plan for retirement?

Experts say the best way to get started on the longest of the long-term savings goals is to sign up for the 401(k) plan at work. These plans allow you to divert a percentage of each paycheck, before taxes, into a separate investment account, where it’s held tax-free until you retire. Many employers will match your contribution dollar for dollar up to a certain point, so make sure you are contributing enough to take full advantage.



“That’s free money,” says Bodnar. And you can count the matching funds toward your savings goal. If you’re in for 4 percent and your employer matches your contribution, you have most of your 10 percent savings goal for retirement covered.



It’s also important to find out what retirement plans your spouse is contributing to, and how much is going in.



If you are a stay-at-home mom, Bodnar says you should still be saving for your own retirement, and you can do this with the help of a Spousal IRA. IRAs (Individual Retirement Accounts) are private accounts similar to a 401(k). They allow workers to set aside a portion of their income, tax-free, to be held until retirement. Working spouses can also contribute to Spousal IRAs on behalf of their stay-at-home partners.



5. Do you need to talk to a professional?

You can probably tackle all of questions 1 through 4, and most other financial issues, by yourself – or with help from the spouse who has been handling the family finances. “Ninety-five percent of the things you need to know and do, you can do yourself,” insists Bahr. There are some circumstances, however, where you might need to bring in a pro:



If you have a major life change – The news could be bad, like a divorce or the death of a spouse, or good, like the birth of a child or a promotion and raise in salary.



If you receive a large lump sum of money – Whether it’s an inheritance, lottery winnings or some other windfall, make sure you make the most of it.



If you have an investment portfolio to manage – Investing can get complicated, which is why there are so many financial professionals out there.



If you just need someone to help you get started in the right direction.



You’ll want a certified financial planner who charges by the hour for services. A good way to find one, says Mendelson, is to ask for referrals from people with financial resources and values that are both similar to your own. There are a few quality organizations out there that can also help you choose (see “Resources” box).



Having a professional involved, however, doesn’t mean that you don’t need to understand your finances and be involved yourself. “If you had a nanny in the house, don’t you think you’d be checking on your nanny to make sure she was taking good care of your children?” asks Bahr. The same is true for the person taking care of your money.



What to Do Now 

By this point, you might have made yourself quite a list. Don’t panic. Our financial friends generally agree that the best thing to do is to begin with the thing that bothers you the most. “What is it that really bugs you?” asks Bodnar. “What is keeping you up at night?”



Talk to your spouse or partner. Then delve into that one thing and devote yourself to getting it fixed. “Stay focused on that one item and follow through with it until completion,” urges Mendelson. After you’ve created your Personal Financial Statement or paid off a credit card, for instance, you can move on to refinancing your home or setting up your 401(k) contribution. “Dive into that until you’ve consumed all the information you can and acted on it,” Mendelson says.



The point here isn’t necessarily to take over the family finances, but to be informed about and responsible for your own financial future. Just take things one step at a time, and you’ll find yourself more comfortable with and confident about handling money.



“Once you start using money in the appropriate way,” says Bahr, “it’s so empowering.”



Christina Elston is the senior editor of LA Parent and a frequent contributor to Bay Area Parent.






• Financial Planners Associationwww.fpanet.org – This organization’s website offers consumers financial tips, articles on topics like retirement planning and an option to search for a planner by ZIP code or other criteria.



• Kipplinger’s Personal Financewww.kiplinger.com – This magazine comes out monthly, and the website is a treasure trove of information about real money issues facing real people. Editor Janet Bodnar especially recommends searching for the “Online Budgets For Everyone” article in the magazine’s Oct. 2012 issue.



Women’s Institute for Financial Education (WIFE)www.WIFE.org – This resource is targeted directly at women. It features 21-day email “makeovers” with tips to address savings or paying down debt; articles on a range of topics; and kits to facilitate Money Clubs (think book clubs about cash) to help you and your friends gather and learn about your finances.

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