Family Finance
Module 2: Us Ltd.

Welcome back.

I hope you enjoyed module one and are relaxed, positive and together as we jump right in to module two. In this part, we will be discussing the various structures that partners use to manage their money and we will be getting down to our first numbers exercise.

Part One

Assumptions

In Ireland, couples wanting to marry in church have to do a “pre-marriage course” .

The idea is to encourage partners to sit down and address practical issues to help them make the transition from singledom. In my friends class one couple told of when they first moved in together. The first day they both woke up in the same house, they got up, went to work as usual and were excited to return to their new joint abode. When they got home she went for a shower and he sat down to read the paper.

They both waited for dinner.

After a while as it became apparent that no dinner was forthcoming, and as hunger set in, the first row erupted. You see, he came from a home where his mother made evening meal so he was waiting for his girl to put the dinner on the table. But she came from a home where her father was the one who put dinner on the table so she was waiting for her partner to do the same.

Now this is not a discourse on whose job it is to make the dinner. It’s just to illustrate that, totally unconsciously, we all bring assumptions to our partnerships that may or may not fit with our partners equally unconscious assumptions.

Nowhere is this more true than with our finances. And while we may be inundated with open discussion and be keenly conscious of negotiating the male/female roles within a partnership, there has been no such explicit forum on the money attitudes we bring to coupledom.

Part Two

Make up your own rules

Today’s society is such a mixture of cultures and concepts. Many different traditions are blending and producing ever-new solutions to age-old arrangements.

There are all kinds of partnerships.

  • We have the traditional male/female but with or without family, in one or two family homes, in one or two different geographical locations.
  • Then we have similar single gender arrangements.
  • Some people choose the wife/mistress, husband/lover arrangements.
  • Some are doing shared housing only situations.
  • Many families have grown up children living at home longer than ever before.

I could go on. The permutations are endless. All are equally valid and all require a complete openness when establishing a supportive financial structure.

Within all the possible partnership arrangements, there are sub considerations.

  • Who is earning more?
  • Who has the greatest earning potential?
  • Will there be children?
  • If so, who will be the primary carer, if there is to be one at all.
  • What are the natural strengths and/or ambitions of each partner?
  • Who wants to go out to work, who doesn’t?
  • Who is self-employed, has flexible working practices or works part time?

And so on and so on. You get the picture.

As a financial coach, married to a financial coach, I have had the opportunity to witness some of the simplest and most bizzare financial arrangements you can imagine. From splitting everything down the middle to the last penny, to total sharing complete with joint accounts, to separate but contributing equally/percentage per income, to detailed pre nups for future financial gain, you name it.

The only rule is that there are no rules. There are only tools. Each to their own.

And therein lies the key.

Part Three

Your Financial Partnership

The elements are all the same. How each partnership selects and collates those elements is entirely a matter of choice.

It might seem the simple solution is to just let the person who knows the most about money, or is the most comfortable with money or is willing to assume responsibility for money take control. However, while it may seem obvious, evidence suggests that the long-term effect of allowing another person to be in charge of your financial arrangements to your exclusion has a seriously detrimental effect on both parties.

It is said that health and wealth are the two areas in which one should never give up personal responsibility. I agree entirely.

For a healthy financial partnership to last, the structure must not be the one delivered by the biggest earner, or the one who manages the household accounts or the one assumed by the person who has the best financial knowledge. A healthy financial structure is one, which allows for the needs of both parties, regardless of earning power or past history.

The problem is that most of us have never examined for ourselves the financial attitudes we bring from our past to our new situation. If we don’t know ourselves financially, how can we be expected to communicate our needs to a partner and contribute to a new structure that supports both.

In this module the action items are designed to have you take a look at what habits and attitudes you may have brought with you to your new partnership. If they serve you great. If they don’t dump them and start afresh.

Remember when you were getting together with two of everything. Two mixers, two toasters, two televisions, two houses etc. Some things it’s great to have two of, some it is just a waste and some are in direct conflict. Some things are missing.

Take a look at what you have and have fun designing a new arrangement made up with the best of both.

You will also begin your first numbers exercise. It is your net worth. Do it separately or together, whichever suits your chosen arrangement.

Part Four

1. Your money & your mind. (separately)

  • What did you learn from your father about money? (adapt to suit the particular arrangement of your original family)
  • What did you learn from your mother about money?
  • What did you learn about money at school?
  • Are the people who shaped you financially, financially secure?
  • What patterns do you have around money that get you in trouble?
  • What does money mean to you?
  • If there was one thing about yourself and money that you would change, what would that be?
  • What do you believe about yourself and money?

2. Money & your partners mind. (separately)

List the top three things that your partner does financially that you admire.

3 Money & your partners mind again. (separately)

If there was one thing that you dislike about the way your partner handles money, what would that be and why?

Part Five

4. What are you worth?

In financial terms this exercise is about establishing your “Net Worth.” What that means is that you will add up what you own, subtract what you owe and the result is your “Net Worth.”

In the next few paragraphs, I have given you easy to follow instructions on how to complete this first exercise. I recommend you take a moment and read all the way to the end to get an overview before beginning back here with item number 1.

The entire exercise should take you less than 2 hours in total during the next week although you may have to take some time in between the beginning and the finish for some of your questions to be answered. You need to pick one day (today sounds good) and add up everything you own and everything you owe on that day.

Round off numbers to the nearest £. Estimate conservatively. If you are not sure of a value, make a good guess. Getting the picture 90% correct and finished is better than aiming for 100% accurate and never getting there.

Your Assets (everything you own)

In your notebook on a new page write “Assets” across the top and underneath list the following headings shown in Italics in the following order.

1. Investment in Real Estate
(Do not include your home). Write the current market value of any real estate you own. If you own more than one piece of real estate list them separately and their value.

2. Investment in Business
Write the current market value.

3. Partnerships
Write the current market value of any investment you have in partnership with someone else.

4. Art, Collectibles, Autos etc.
Write the current market value of any collectible items you own.

Now add 1-4 together and that total is your “Illiquid Assets.”

What that tells you is the total value of the things you own that would take some time to sell and turn into hard cash if you wanted to.

Draw a line under this total and call it Total A

Leave a line and continue with:

5. Monies owed to you
(Also known as Debtors or accounts receivable). List the people who owe you money and how much they owe.

6. Pension Plan
Write down the current surrender value. If you don’t know this, just call up your pension company and ask them for the surrender value. It may be zero.

7. Life Insurance
Write down the current surrender value. Again, if you don’t know the answer, call up your insurance company and ask them for the surrender value. It may be zero

8. Stocks, Bonds
Write down the current value of any stocks or bonds that you own. If you do not know, call up your broker and ask them for the current value of your account.

Now add 5-8 together and that total is your “Liquid Assets“.

What that tells you is the total value of things you own that are easily sold and converted into cash if you need them.

Draw a line under this total and call it Total B

Next:

9. Cash
Count all the cash you have in your pockets, purse and piggy banks and write down the total.

10. Cash Equivalents
This is money in bank accounts, credit unions, money market accounts, the Post Office and so on. Write down all the money you have in all your accounts.

Now add 9-10 together and your total is your “Capital currently Available (uninvested)“.

What that tells you is the amount of money that you have in cash or an easily accessible account that you could use easily.

Draw a line under this total and call it Total C

11. Your principal residence
Write the current market value of your home.

12. Personal property
Write a list of the things you own such as jewellery, furnishings, cars etc and estimate what you would receive for them if you had to sell them today.

And finally for this part, add Total A + Total B + Total C, together with the answer from numbers 11 and 12 and that total is your “Total Assets“.

What this tells you is the value of everything you own if you had to sell it all today.

Draw a line under this value and call it Total X

But of course even if you sold everything you had today and had the money in your pocket, before you could go on a spending spree, you would have to pay anyone you owed money to first.

So let’s find out about the money you owe.

Part Six

Your Liabilities (everything you owe)

In your notebook on another new page write “Liabilities” across the top and underneath list the following headings shown in Italics in the following order.

13. Accounts Payable
This refers to bills such as for electricity or telephone, which you have received but have not yet paid. List them and their value.

14. Business Loan.
Write down any monies that you may have been loaned to put into a business.

15. Credit card balances
List your credit cards and their balances.

16. Lines of Credit
This includes hire purchase or lease agreements such as for a car and shop credit like store cards. List them and how much you owe to each one.

17. Mortgage
Write the amount outstanding on your mortgage today.

Now add 13-17 together and your total is your “Current Liabilities”

What that tells you is the amount of money that you owe if you had to pay everything you owe today.

Draw a line under this total and call it Total Y

Next, one last calculation and you are done.

Result!

Your Net Worth

Take your total Assets (Total X) and subtract your total Liabilities (Total Y) to give you your “Net Worth“.

When you take your liabilities from your assets, this tells you the amount of money you are worth today. If you were to sell everything you own, pay all your debts and walk away with all you possess in your pockets, it would be this amount.

That’s all there is to it, so go back now to the start of this Net Worth exercise and strut your stuff. Focus on one item at a time. When you don’t know the answer, pick up the phone and ask the person who does.

Net Worth is best calculated at least annually. However, in the beginning of learning about your finances and when you are making major decisions I recommend redoing it every 6 months and even quarterly.

That’s it. See you in module three when we’ll be having some fun learning about spending money.