With many modern families, balancing the bank account is one of those activities that sit on the corner table, like the elephant in the room that everyone tries to ignore.
It gets even harder for families who know they make less money than they owe in bills at the end of every month, but ignoring the bankbook or the spreadsheet won’t make the bills go away. If more families thought of their household as a business, with revenue and payables instead of paychecks and bills, they might be able to use basic business pr
inciples to bring their personal finances issues into focus and even solve them forever.
That’s what Kim Snider, CEO of Snider Advisors (which manages approximately 500 million dollars) and author of the new book How to Be the Family CFO: 4 Simple Steps to Put Your Financial House in Order, advises for Americans struggling to get out from under the yoke of the ongoing national financial crunch. Her concept is to turn heads of households into their family’s Chief Financial Officer, instilling the same principles of fiscal responsibility and management in regular folks.
Her advice delivers the heart of basic financial literacy through easy to follow steps:
Plan Prudently – Whether you do your bills online or the old fashioned way, every family can easily see what they owe in bills every month. Gather the paperwork into one stack, or create a computer file that details all your regular monthly expenditures. Combine it with your pay stubs and records of any other income. Now, you have a clear picture of your revenue and your payables. Moreover, you also have due dates for those bills, so you can match your cash flow (when you get paid) with when certain bills are due. Now, simply plan out what you’re going to pay and when you’ll pay it. Most companies mirror this procedure once a week, cutting checks on Fridays. You may not need to do it as often, but if you review your expenses once a week, you’ll always know where your money is and where it’s going.
Save Prodigiously – Saving money, to most families, is one of those things that always gets delayed for next paycheck. But saving is more than just trying to create a stockpile of cash for the proverbial rainy day—it’s about weathering the minor drizzles that come along every month. Unexpected car repairs, medical bills, home repairs, clothes for kids who can’t seem to stop growing—these are all examples of flies in the budget ointment. If you can put away even $10 per week, it can help stem the impact of having your car’s alternator go belly up the same week you’re buying holiday gifts.
Invest Wisely – Take true advantage of your employer-sponsored retirement plans and 401K plans by allowing them to deduct the maximum amount from your paychecks. In many cases, employers match that money, so it’s tantamount to saving twice the amount for retirement. Plus, the more you save up front, the more you’ll benefit from the magic of compounded interest. The few dollars in cash flow you sacrifice now (which won’t hurt as bad as you think, because it’s PRE-TAX dollars) will be well worth it when you see your retirement balance grow later.
Manage Risk – Your biggest risk isn’t what you might think it is—it’s not about the financial markets or even your house burning down. Rather, the biggest risk for most people is the loss of your regular income. The vast majority of families who are in trouble today aren’t in crisis because of natural disaster or catastrophic illness, but rather, because someone in the household lost a job. You can hedge that risk by keeping your job skills current and competitive, and taking on a disability insurance policy.
Snider believes that if more people ran their household finances like a company, they would run smoother, more efficiently and with fewer crises both in the short term and the long term.