Run the family finances as a business

Question: I want to prioritize my family’s financial habits and start making smarter choices. Do you have any tips or strategies for family finances? 

A: The best advice we can give you is to start running your individual and family finances the same way you would a business. Most people don’t regard themselves as “businesses” – trying to generate a profit. Looking at your financial situation from this perspective may be helpful in determining where you might cut expenses, boost cash flow and generally improve your personal financial situation. It can be especially beneficial if you foresee a major financial commitment in your future, like buying a house, or starting an actual business. Here are some tips.

Tom Cooney with Wealth Dimensions

Examine your financials, Where an executive might reach for financial statements to get a read on the company’s standing, you can create or update a personal net worth statement. Essentially a monetary scorecard, a net worth statement shows where you stand financially and whether you are on track to meet your short term and long term goals.

You can calculate your net worth by summarizing the current value of all your assets, including cash and cash equivalents, brokerage account balances, retirement funds, real estate and other fixed assets and personal property. Then subtract your liabilities, including mortgages, personal loans, credit card balances and taxes due. The difference between the total value of your assets and your liabilities is your net worth.

Another very important calculation in business terms is your “cash flow statement”.  Creating this statement is simply determining the monthly net cash inflows you receive from net salary (after tax withholdings), dividend and interest income, rental income, etc. minus you monthly cash outflows such as loan payments, expenditures for food, clothing, education costs, taxes, etc. Creating a cash flow statement comparing your monthly cash inflows to outflows provides important clues about where your money is going and how you might be able to trim spending and increase savings. Are you relying on credit cards with high interest rates? Could you cut back on food or entertainment costs? These are just a few questions you must answer to better understand how sometimes even small changes to your spending habits make a big difference. Wealth is not created by what you make as much as what you retain.

Practice stronger risk management. To maintain their companies’ financial health, business executives also practice risk management. You can do the same by first assessing compensation and benefits elections. A major life change — such as a marriage or birth — may require an update to your W-4 withholding allowances with your employer.

Unexpected medical costs can be financial catastrophe if you aren’t prepared. Review your health and disability insurance to ensure it is providing the best value.  If you have a Health Savings Account or Flexible Spending Account, ensure you’re using it to your full advantage.

Think about other insurance, too. Perhaps your home has increased in value, necessitating a corresponding increase in your homeowner’s coverage. Maybe you no longer have enough life insurance to protect your growing family. Your insurance professional should be able to help identify the right amount of coverage.

Finally, proactively check your credit report. If you wait until something is obviously wrong, it may be too late to prevent significant damage. Federal law requires the three major credit reporting agencies to provide you with one free report per year. Take advantage.

Think about retirement. Business owners must think about succession planning. But even if you don’t own a company, you should think about life after employment.

If your employer allows you to adjust your retirement plan contributions during the year, consider boosting them to take full advantage of tax-deferred compounding and, if available, employer matching. Similarly, if you plan to make an IRA contribution this year, do so as early as possible to give your assets more time to grow.

Review your estate plan and, if necessary, update it. Financial priorities change, so make sure the beneficiary designations for your retirement accounts and insurance policies still match your wishes. Check your will or living trust and change as necessary.

Get rolling. It is never to late to practice good financial habits and get a grip on your current net worth so that you can take proactive steps to make changes that will build wealth for you and your family. If this is too daunting to do yourself, reach out to a trusted CPA or certified financial planner knowledgeable in these matters to help you get started.

Crystal Faulkner is a Cincinnati market leader with MCM CPAs & Advisors, a CPA and advisory firm offering expert guidance and beyond the bottom line thinking for today’s public and private businesses large and small, not-for-profits, governmental entities and individuals. Tom Cooney is with Wealth Dimensions, an investment advisory firm. For additional information, call 513-768-6796 or visit online at You can listen to Tom and Crystal daily on WMKV and WLHS on “BusinessWise,” a morning and afternoon radio show that profiles highly successful people, companies, organizations and issues throughout our region.

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