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Family Finances: Are You On the Right Path?

Some insider insights regarding balancing your family's finances--more important than ever when planning and paying for college! From the book Mastering the Mommy Track: Juggling Career and Kids In Uncertain Times by Erin Flynn Jay.

Some insider insights regarding balancing your family's finances—more important than ever when planning and paying for college! From the book Mastering the Mommy Track: Juggling Career and Kids In Uncertain Times by Erin Flynn Jay.

Revised spending plans

How has the Great Recession affected other working mothers’ financial decisions? Kimberly Foss, CFP, a personal finance expert in Roseville, California, said almost all of her clients, working or retired, have put into place a revised “spending plan” that matched their incomes—either as W-2 wages or retirement income. On average, Foss has seen her clients cut usually 20%–30% of their spending plan’s expenses over the past 36 months.

“My mothers are much more cost conscious and are making purchases in bulk, placing what could be ‘wants’ on a ‘watch list’ for 30 days before purchasing the items,” Foss said. “For example, perhaps a new suit for work would be placed on the watch list. After 30 days, they revisit the items and typically the mother forgoes the new items because she has spotted a suitable replacement at a consignment store.”

Deana Arnett, CFP, a senior planning consultant at Financial Planning Services in Northern Virginia, said the Great Recession has caused people to hold onto their money more tightly. “Mothers tend to be less of a risk-taker than fathers, and the recession has intensified that tendency. Mothers are inclined to look at ways to juggle all of the household responsibilities—getting the kids to school, making dinner, paying the bills,” she said. “The Great Recession has forced them to look at how they can do things more efficiently and trim the fat.”

These challenging economic times have changed the advice some finance experts offer. Foss has advocated even if you have $5 million in the bank, to cut your spending down—to 65% “needs,” 20% “wants,” and 15% “savings,” for example.

Arnett has always been a “no debt advisor,” but she is anti-debt more now than ever. Before this recession, she never talked to her clients about coupon clipping or managing household budgets. She learned that many people cannot handle their household budgets. “Many of my clients have busy working and family lives and simply don’t have time to set up a budget,” Arnett confided. “Today, I spend a lot more time talking to clients about the basics. While recessions are hard times, they are a great time for people to reset, re-evaluate, and even correct financial mistakes they’ve made in the past.”

Today, Arnett advises clients more to have their houses paid off. She helps clients pay their houses off early, use existing mortgages to do so, and avoid any refinancing.

Overcoming financial issues

Andrea Pokorny, founder of www.MainstreamMom.com, gave up her corporate career three years ago to be home with her three kids and had financial obstacles in her way after she left. “I could no longer take leaving them with practically strangers for nine-plus hours every day. I had been battling with the decision ever since I was on maternity leave with my first little girl,” Pokorny said. “But when my dad died suddenly, things were put into perspective rather abruptly, which caused me to think in a whole new way.”

Once Pokorny left her career, she tried several new ventures to make money from home, attempting to replace the missed income (she was bringing home over $70,000 per year, and now this was gone). She fell short time and again, but not without succeeding in building a pile of debt. “We had a mortgage, normal expenses like every household, credit card debt (skyrocketing), and I was seven months pregnant with our third child when my husband got an e-mail from his employer telling him he just got a drastic pay-cut,” Pokorny confided. “In a very short time frame, our income went from well over $100,000 down to $25,000. We were in a bit over our heads!”

Add the health care for their new little baby boy (who was helicoptered to a neo-natal intensive care unit shortly after birth), Pokorny’s mom suddenly passing away, plus her futile attempts to build a home-based business and racking up debt. Their lives and finances were deteriorating rapidly.

Pokorny admitted she was horrible with money and had been her entire life. “I never budgeted, always lived paycheck to paycheck, and I never cared to learn the important basics of managing money. Obviously this was our wake-up call,” she said.

“Thankfully my husband was offered a better job within only one week. We had to relocate and sell our home. We began renting and rebuilding our lives, knowing exactly what our goal was—to live debt free.”       

Fast forward to today. Pokorny created a sizable income working from her home computer. They’ve made strides in becoming debt free (almost totally there). The way in which she got through it? One hundred percent self-education. “I became a library-going,

website-searching, reading fanatic, and basically got my act together. During my struggles, I created my website to help other mothers looking for financial security,” said Pokorny. “I am now also a marketing manager for another site online.”

So despite many bumps in the road once she left her career, Pokorny has been able to create another income working from her home office.

Stacy Francis, founder of Savvy Ladies, a nonprofit organization dedicated to empowering women to take control of their finances and achieve a richer life, said something interesting happened in her latest Savvy Ladies telephone conference. When

one woman told the group that her husband’s sloppy attitude toward money was so frustrating to her and that she wanted to divorce him for this reason alone, every woman in the group expressed their support. “Several of the married women even told her they could relate because they were having similar issues in their marriages,” Francis said.

Indeed, one of the most common reasons couples split is financial disagreement. Here’s how you can overcome financial hurdles and set a plan for the future with your spouse or partner:

Create a budget

“Sit down together, and put your expenses and financial goals on paper. Be realistic, and make sure that sticking to the budget won’t require too much effort,” said Francis. “Remember that budgets are like diets—they never work if they’re unrealistic.”

New York City-based Jeanne Brutman, a fee-based financial planner for business owners and individuals, agrees. “Consider the usual: housing, electricity, garbage, water, landline phone, cable, Internet, cellular phone, childcare or support, food (grocery, eating at work, ordering in), transportation (car payments, gas, tolls, parking or bus, subway, transit, cab), insurance outside of deductions from paycheck (renters, home, umbrella, car, health, dental/vision, life, disability, Medicare, long-term care, and so forth), debt (car, student loans, credit cards, personal), drug store, prescriptions, pet supplies, home or car maintenance, clothing, dry cleaning, laundry, and lastly charity, entertainment, and so forth,” she said. “Please account for 5% or 10% if possible to go towards savings. Do not spend more than 20% of what you make on debt. If you only focus on paying off debt, you get what you focus on!”

Hire a professional

The financial experts I spoke to agreed on this. “Find a certified financial planner in your area, interview them and pick one that understands where you are in your financial journey,” said Arnett. “Seek out a financial planner who will sit down and prioritize your goals, put money figures next to them, and then show you how to reach those objectives.”

“A person only has 168 hours a week; 60–80 (say 70) are for work, 14 are for eating, 49 are for sleeping, seven are for personal hygiene, 17 are for housekeeping and food shopping . . . that leaves 11 hours for other stuff,” said Brutman. “I spend 70 hours a week on my profession and have done that for 10 years. That’s 36,400 hours on financial planning. Get help—we just have more time to get you to the information you need faster.” Sasiela often suggests her financial therapy clients work with a financial planner to get clear on their future goals and how best to manage their resources to meet them. 

Communicate and work together

“It seems so basic, but you have to agree that there is a hurdle, what that hurdle is, and then commit to a strategy to get past it. It takes a conscious effort to get past a hurdle, whether it’s financial, emotional, or something else,” said Arnett. “When you agree up front on the hurdle itself and the tactic for overcoming it, then you get strength in numbers. You’re not facing it alone, and that means something.”

Many couples fail to discuss their financial differences. “Approach them in a calm, non-threatening way, and focus on finding constructive solutions that both of you agree will work,’ said Francis. ‘Whether you intend it or not, the way you manage your money will affect your spouse as well. Make sure he or she is comfortable with your spending and investment habits.”

Keep a credit card for emergencies only

“As you may have noticed, when you don’t use a card, the issuing bank tends to up your limit to tempt you to use it. You can, but only when you have no other choice,’ advised Francis. “Remove from your wallet: all credit cards but one for emergency (defined as life-threatening need such as needing to get towed because of a car accident); and all cash except for $40 that you only use when you cannot use a debit card,” Brutman advised. “For all spending, use a debit card linked to your monthly account.”

Determine what is of most importance

Separate the “wants” from the ‘needs.’ For example, Foss said a need may be funding tuition for your child’s future, while buying the latest trendy clothes from Abercrombie is a “want.” Teach your children by example, she said—by sacrificing a “want” today for a ‘need’ of a college education years down the road.

Determining what is truly of importance is tough because what may seem important to one person can sound like a discretionary item to another. Take for instance, private school. “For many families, it is a priority for their children to attend private school. However, there are public schools children can be sent to for free, not to mention, your tax money already goes there,” Arnett said. “The reality is that during hard times, sometimes gratification has to be delayed.”

Foss advocates you and your spouse create a “top 10” money goal list on your own and then compare the lists with one another. ‘Create a common goal list from the two separate ones. Typically, financial goals are much different from each spouse’s perspective,’ she said. “Create a common list—create a sense of financial partnership to work towards your combined list.”

For example, on Foss’ top 10 list, she chose to accelerate their mortgage payment to pay off the house in five years rather than 15. Her husband’s goal was to fund his children’s (her stepchildren’s) college education funds. They ended up choosing to downsize their home to reduce the mortgage and create more cash flow, thereby accomplishing both goals.

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