Hi Everyone! Welcome back to Melissa Making Cents.
Today I would like to bring up an issue that many do not see as a problem, until the problem jumps up and smacks them right down to the ground. And I don’t mean a light slap..I mean a WWE Tables, Ladders and Chair Match...Power Slam, followed up a complete TKO. As both financial planner and financial advisor, I've seen first hand how this can devastate families.
In many families one person takes on the role as “money manager”. I’ve seen this go either way. One person is very career driven and lets the other handle all the household finances, because they simply can’t take the responsibility. Or… the career driven person handles all the finances because the other doesn’t feel comfortable enough handling money.
You surely run into these traditional views on money at some point in your life. TV shows like Mad Men are a perfect example of just handing over the finances to the man in her life and going about your life. I’ve been in meetings and have had the husband explain to me that he was looking for someone to handle all the money for his wife if something were to happen to him. In another meeting a client went so far as to say he was planning on his wife dying first so she wouldn't have to “deal with it”. I've certainly seen this scenario play out the opposite way as well.
For the record, I’m OK with one person “handling” a little more of the financial responsibilities than the other person in a relationship. But…. both people NEED to be on the same page. It's important to sit down as a team and talk about what you have and where you have it. You should to work together to set financial goals, and acceptable levels of risk. Men are traditionally willing to take on more risk than women, due to their traditional higher earning power and often competitive nature. We can best sum this up with the phrase, “Men buy shares on Mars, and women have savings accounts on Venus”.
When life throws a curve ball
Let me give you a prime example of exactly how that Power Slam sneaks up on you. Years ago I had an aunt pass away, and we all knew she was the money manager in the family. What we didn’t know was where “everything” was... and neither did my uncle. My sweet aunt was very tech savvy, and preferred to do everything online. He wasn’t sure what bank they used, when the bills were due, and what the bills exactly were. And because a lot of the accounts didn’t have his name on them, it was even more of a problem to access them. Financial institutions don’t simply say, “Sorry for your Loss” and hand over the golden keys. It can sometimes be a long and frustrating process. With my uncle being older, it was just assumed than he would pass first, and my aunt would be prepared. No one could fathom her passing younger than our traditional family life expectancy. The pitcher in this game threw a cancer curve ball, and shocked us all.
Have your own money, and spend it too!
I am a huge proponent of having your own personal accounts. Everyone should! Having a separate account from your partner gives you a bit of financial independence. And no one can criticize you for spending your own money, as long as you are being responsible and self accountable. But you should also have a joint account where you pay your household expenses, and keep an emergency fund. This way if something pops up… the household won’t be put at risk.
Get Financially Organized
“Life happens” at any age, and it certainly doesn’t discriminate. The one thing that will never change is that "Nature Wins". Be prepared. Make sure you talk through your finances, and keep a list with your account info. I recommend creating a financial organizer. This can be an old fashion binder, or a high tech software accessible on the cloud. Nonetheless, get organized.
Make legal paperwork a priority
While you are getting organized, make sure you have the legal paperwork to handle the finances in case of incapacitation. One type of legal paperwork to consider is a power of attorney. Traditionally, a power of attorney would be canceled in four situations: (1) if you specifically cancel (revoke) it, (2) if it has an expiration date, (3) if you die, or (4) if you become mentally incompetent. In more recent times, the durable power of attorney was created to allow it to continue to be in effect after mental incompetency. The word “durable" means that the power of attorney continues to be effective after the loved one becomes mentally incompetent.
Let’s look at a real life example… Recently a client’s wife called to say her husband was in the ICU and things were not looking good. She was anxious and scared, as you would expect. She said she needed money because she automatically deposits her money into his account and he pays the bills. The bank told her that she had no access because her name wasn’t on the account. Thankfully she had an account in her name that we could help her with. I asked her if she had a copy of the Power of Attorney and she responded they didn’t have them because they figured they would never need them. In this really unfortunate occasion, it looked like the only way to his bank account, into which she deposited HER money, would be through a court.
I can't of course, give legal advice, and so I'd suggest you consult a qualified attorney!
Let’s take responsibility of your personal finances
As a CERTIFIED FINANCIAL PLANNER™, I don’t expect my clients to understand every financial topic to the fullest. I can tell you from experience that the world of finance is definitely overwhelming and intimidating. I wouldn’t be so passionate about this blog if that was not the case. By understanding that our money mindsets MUST change, we can work together to develop a great financial literacy base. The days of deferring your money decisions to others is over. Families must be on the same page about the household finances, and work together to achieve a healthy understanding of their financial future.
I understand that today’s topic isn’t all that fun. But it is VERY important. Don’t wait to experience that Power Slam or TKO personally. Together, let’s start your journey towards financial empowerment, and leave those old money mindsets behind.
Until next time… this is Melissa Making Cents
Melissa Anne Cox
CERTIFIED FINANCIAL PLANNER™ is also a College Planning and Student Loan Advisor in Dallas, Texas.