I recently finished reading The Next Millionaire Next Door by Thomas Stanley and Sarah Stanley Fallaw and found the following quite interesting:
WANTED: Household CFO
Description: The role of Household CFO is to ensure his/her household is building wealth in order to ultimately achieve financial independence.
The Household CFO will oversee the household’s budgeting and financial planning. He/she will be required to create, manage, explain, defend and negotiate household budgets annually, and monitor spending and saving related to said budget. He/she will be required to plan for the financial security and longevity of the family, focusing specifically on retirement planning, college savings planning, and other larger expenses in the foreseeable future. The Household CFO will be required to balance checkbooks, file tax returns, pay bills on time, create financial plans, create estate plans, research investments, monitor investments, and generally run all financial matters for the household. The Household CFO will serve as a check on household spending, and thus will work closely with the following individuals: Household Chief Procurement Officer and his/her team members (read: spouse/self and/or children). The Household CFO may choose to outsource any number of his/her responsibilities to trusted advisors, and therefore, part of the Household CFO job may include the ability to research and hire quality professionals who act in the Household CFO’s household’s best interests.
From where you live and your children go to school, to where you go on vacation and the general lifestyle you lead. It’s the groups you associate with and the opportunities that are afforded to you. How great would it be knowing you had a good handle on all these areas versus floating along and waiting for things to happen to you? No … you will be the one making things happen!
This may seem insurmountable but I encourage you to take the following steps. Tiny, little, baby steps that you can work on each week or each month that will lead to a greater understanding of your personal finances and set you up for success.
1. KNOW YOUR NET WORTH
Why is this so important? It gives you a snapshot of your current financial standing. Whether you calculate this figure monthly or every six months there is one thing you’re looking for. And that is whether or not your net worth is growing or shrinking. If you find that your net worth is shrinking, it’s important to take steps to find out what the underlying issues are.
2. HAVE A BUDGET IN PLACE
A budget puts you face to face with the facts. Can we afford this? What bills are due every month and what do we have to set aside for those infrequent bills? What is important to us when it comes to spending money? You may find family vacations are a top priority but they’re not happening because you dine out too frequently. Once you put your spending plan in place you will find everyone begins to get on the same page and work towards the same goals.
3. REACH YOUR SAVINGS GOAL
For example, instead of saying “I’m saving for a house,” you should be saying “I am saving $70,000 for a down payment in the next 3 years.” This tells you how much, what it is for, and for how long. Knowing specific goals allows you to measure your progress and if it works with your spending plan you know it is attainable and timely. And finally, if you’re married with kids, this certainly makes a home purchase relevant to your current situation. On the other hand, if you came to me wanting to buy a helicopter, I would most likely question you to figure out the relevance and why it is so important.
LEARN AS YOU GO
Learn the basics and do them well, as time goes on and things become more complicated, you can begin to outsource the complex things to trusted advisors. And whether you decide to take the role on by yourself, or your spouse goes it alone, or you do it together, communication is key to any successful financial plan. Ensure you both are on the same page with the same goals, priorities, and an understanding that you can always reach out to a trusted advisor when the time is right.
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