How do you manage your family finances? Why not run it like a business? Here’s how:
- Establish your purpose
Did you know that some wealthy families have family constitutions? Well, you don’t have to go that far. But it could do your family well if you set your purpose. Businesses exist for a purpose, and so should your family. That means setting a family vision and mission statement. What is your vision for your family? And what is your mission to fulfill it? Answering these questions will help you and your spouse (and even your older children) to dig deep and figure out what you value in life. With a purpose, you will have clearer direction and guidelines. Otherwise, your family will just coast through life. For example, in our case, we want to be examples and advocates of stewardship.
- Set your plan
Now that you understand your purpose, you can be more intentional in what you do, which often involves money. Since we want to be good stewards, we try to be careful how we spend and grow our money. Setting your family’s financial plan starts with knowing the state of your finances. So it’s important to run the numbers and find out two things: your net worth and your cash flow. You get your net worth by preparing your family’s balance sheet, with your assets on one side and your liabilities on the other. The difference is your net worth. You figure out your cash flow by making an income statement or cash flow statement, with all your income and all your expenses. The difference is your cash flow, positive and negative. This way, you know where your family stands financially. Then you can develop a spending plan or a budget to direct where your money goes.
- Divide your responsibilities
Companies have organizational charts, so why not your family? For us, I am the CEO (still subject to debate!), CIO, and CMO. My wife is the COO and CFO. Our kids, well, they’re too young to be our staff, but they are in fact our apprentices who we need to train as they grow. We have of course our office and household staff, and they have roles to play. Having clear roles and responsibilities make us responsible and accountable. I am in charge mainly of bringing in the revenues and making investment decisions while my wife takes care of managing expenses and handling accounting.
- Review your performance
As with any business, you have to review your family’s performance in various areas, including finances. That involves doing regular reporting on your finances (it can be weekly or monthly) so you can cut costs where necessary. You should also evaluate your investments on a quarterly basis. And once a year, do a full-year review and planning for the following year. I suggest you go on an out-of-town trip to make it fun, relaxing, and inspiring. Hey, if companies do off-site retreats to rejuvenate and do their annual planning, why can’t your family?
- Incorporate your family business
You may want to consider as an option putting up your own family business. It can be a part-time, home-based business as a start. Not only can it potentially add another revenue stream for your family finances but it can also become a legacy you can pass on to your children. A business is an asset after all. Besides, a business is a good tax shelter. You can combine business and leisure like traveling, eating out, etc. and use those expenses as deductions to your taxable income (as long as they are legitimate). You can deduct part of your rent, electricity, equipment, etc. as well if you have a home-based business. But most of all, despite its own set of challenges and conflicts, having a family business is a great shared bonding experience that can help make your family stronger and richer.
