The following excerpt is Chapter 2 of Scott Feher's new book, Your Life & Money: Putting Your Financial House in Order. Next week, we'll run Chapter 3, as well as tips from Mr. Feher for getting your family interested in saving money.
The bravest are surely those who have the clearest vision of what is before them, glory and dangers alike, and notwithstanding, go out to meet it.
— THUCYDIDES
In any corporation, the chief financial officer (CFO) is a key player. He or she understands the corporation’s mission statement, which sets out the basic goals of the organization and is essential to the company’s growth. As storms arise, the CFO will make adjustments based on the goals set out in the mission statement.
Beyond ensuring that the corporation adheres to its mission, a CFO has other specific duties. Among them are:
1. Knowing all daily, weekly, monthly and annual recurring expenses
2. Knowing the sources and amounts of all recurring income
3. Knowing the company’s investments, and the reasons they were chosen
4. Making ongoing adjustments to all three of the above as needed to fine-tune cash flow and maximize the company’s financial condition
5. Reporting weekly, monthly, quarterly and annually to the CEO or board of directors so that everyone is kept abreast of the financial affairs of the corporation
A great CFO is both tactical and strategic and is always prepared. Like a skilled chess player, he or she can see several moves in advance. Of course, all of this takes effort, practice and research.
If you think of your family as an enterprise like a corporation, you can recognize the importance of the CFO function. That’s why every family should have one.
When we were first married, my wife Roxanne would complain to me that I was running our household like a business.
I pled guilty. “If we don’t watch where all of the money is going,” I asked, “then who will?”
My wife understood immediately what I meant. Since then, we have run our family’s financial affairs in harmony with one another because we both bought into our mission statement.
Who is Your Family CFO?
How do you eat an elephant? One bite at a time.
—UNKNOWN
If we can agree that running your family’s financial affairs is like running a business, then who is your family’s CFO? Since you’ve come this far with me, I’m going to assume that you are your family’s CFO, or perhaps share CFO responsibilities with your spouse. Let’s review those responsibilities.
A family CFO should be able to answer basic questions about the family finances. Do you have a family mission statement and carry out your responsibilities based on it? Do you track your monthly cash flow and expenses? Do you review expenses on a quarterly basis to make sure you are not overspending? Are you taking full advantage of legal tax breaks? Do you check regularly with your professional staff—your certified public account and financial planner—to make sure they’re up-to-date with your progress toward your mission?
Those are the responsibilities of a family CFO. Someone in your family must take responsibility for this role and be fully accountable. I’m going to go out on a limb and designate you as your family’s CFO. You’re it.
And now I will show you how to perform your CFO duties step by step.
Step 1: Creating Your Mission Statement
Since every CFO follows a mission statement, your family should have such a statement to follow. In order for it to be effective, it must be written. I know that may sound hokey, but after developing your mission statement, write it down.
Understand, too, that creating a mission statement may take some time. While it should be a concise set of goals and aspirations for you and your family, you want those goals to be achievable and measurable on a regular basis. You will be updating and improving on your mission statement for the rest of your life.
When you design your mission statement, look at it as a summary of the goals that you and your spouse will work toward. Specify timelines, duties and responsibilities, and keep a vigilant eye on your progress.
