Family Finances a Mess? Try Economic 'CPR'
The economic ICU is the one place you'll be financially resuscitated – but only after you self-administer a mega dose of emergency CPR to get your finances back on track to good health.
Marlene Ware, a financial educator for the National Foundation for Debt Management, has seen it all when it comes to unhealthy family finances: excessive credit card bills, medical debt, student loans, payday loans, foreclosure, bankruptcy and more. She's also seen well-intentioned parents – herself included – engage in massive overspending for their kids, only to regret it later.
"Saving money is critical to your secure future. Your kids will grow up, and you will grow older – this I know," says Ware. "If you don't begin saving today, your retirement future is at risk."Here is Ware's advice on administering economic CPR – and some tough love, too – to your family finances.
The "C" in CPR stands for "communicate." Honesty and openness are the backbone of good communication. If you want to improve your family's finances, it's critical that every member of the family be candid with one another. Couples – including those with separate accounts – should start by having a heart-to-heart about where each person's money is going.
"Agree that you will both be honest about your spending habits," says Ware, who adds, "Secrets don't make strong relationships."
Unfortunately, when it comes to money matters, most couples in the United States keep so many secrets that they act more like double agents than trusting spouses. According to a survey from CESI Debt Solutions, as many as 80% of all couples engage in secret spending, hiding purchases from their partners and generally keeping their financial transactions hush-hush.
That's an easy way to collectively overspend – and to create both financial and communication barriers within a relationship.
Here's a better strategy: Lay out for your spouse what your true spending looks like, including all that stuff hidden in your car trunk, in various bags or in the back of your closet.
Well, maybe you don't have to lay everything out literally. But you do need to come clean verbally. Disclosure is good for the soul, and it serves a higher purpose: It will help you develop greater financial intimacy with your mate and a shared vision of where you both want to be economically.
Ware also says it's important to agree to discuss long-held money beliefs without fear of judgment. So if you're a spender or a shopaholic because you grew up in a household where your parents spent freely and easily and maybe even used their credit cards way too much, share that information with your spouse or partner. "Our past follows us wherever we go," says Ware.
Two final communications tips:
Remove 'I' and 'you' from your financial vocabulary. "There is no 'I' in team, and family finances are total teamwork. From this point forward, everything must be 'we' or 'us', not 'I' or 'me.' 'We' are in this together," says Ware.
Don't view money matters as a competition. Stop having power plays and money trips over who earns the most (or least), who saves the most (or least) or who gets to balance the family's checkbook. That's wasted energy that hurts your ability to work effectively together. Remember, says Ware, "you are both on the same team."
The "P" in CPR stands for "plan." After you identify how you're spending your money, consider whether you have "spending leaks" that need to be addressed. If so, figure out how you'll plug those leaks to eliminate spending that is or could be detrimental to your family's finances.
Establish your spending and saving goals as a unit. Dream and plan together. Make the process fun and future-oriented by focusing on the short-term, mid-range and long-term objectives you'd like to accomplish together.
For instance, would your family like to take a multiweek overseas vacation one summer? Plan for such an excursion by creating a "vacation fund" and putting money into the fund on a regular basis. Also, Ware recommends, "track your spending to make sure you are staying within your goals. Save receipts and update your check register."
It helps also to carve out a mini home office space just for bill paying. "Organization is the key to success," Ware says.
Her other biggest planning tip: Brainstorm together to find collective ways to save money as a family. If you have kids, get them involved. Children can be remarkably creative in coming up with money-saving ideas and strategies.
It's also important to get them to understand, as early as possible, that money isn't just meant to be spent. By talking about money with your kids, they should learn that it's important to save, donate and invest, too. Need some conversation starters? Read WalletPop's list of the best personal finance books for kids.
The "R" in CPR stands for "review." Ware suggests that couples and families review their budgets together in a relaxed non-threatening environment. A word of caution: "Don't let the budget become a tool for blame," says Ware.
While Ware suggests meeting on a weekly basis for a financial status update, for some families, that's just not possible. In that case, monthly meetings – or even quarterly check-ins – will have to suffice.
Whatever happens, though, don't go too long without checking the family's financial pulse. Things come up that may change the course of your plan, and if you see that something is amiss financially, it's best to bring it to the family's attention immediately.
Lastly, don't look at your budgeting and spending plans as 100% set in stone. "Tweak your budget as necessary," Ware says. "It will be constantly changing."
The purpose of the economic CPR process is to put all members of the family on the same page and to reduce financial tensions and strife in the household.
By working together as a team, you can restore your family finances to health and each member of the family can celebrate that shared economic achievement.