The following excerpt is from Chapter 3 of Scott Feher's new book, Your Life & Money: Putting Your Financial House in Order. Click here to read Chapter 2, and don't miss Mr. Feher's tips for getting your family interested in saving money.
Do what you can, with what you have, where you are.
—THEODORE ROOSEVELT
Once you have a mission statement, you can start acting as your family’s CFO. The job has many dimensions, of course, but there are four basic rules:
Rule #1: Know Your Expenses
Familiarity with expenses is the CFO’s most important job. Think about it. If you don’t know how much money is going out, how will you know how much money to spend—or not to spend? People, businesses and governments get into financial trouble when they don’t know exactly how much goes out each month. Unlike the government, however, you can’t print money when you’re in trouble or running a little short.
Can you imagine what would happen if a corporate CFO didn’t know how much his company was spending every month? He'd be fired. Well, if you’re the family CFO and you don’t know your monthly expenses, you’ll be fired too. (It’s called divorce.)
Here’s how to start getting a handle on expenses.
Review the last three months of your check register and see where the money is going. Also, look at the last three months of credit card statements to see what you’re charging. Don’t plan the next three months of expenses until you get a clear idea of how much you and your spouse have been spending recently. This will give you a ballpark figure of what you can afford. If you pay quarterly, biannual or annual bills like homeowner’s insurance or association fees, for example, then divide those bills by the appropriate number to get as close as you can to figuring out your monthly expenditures.
Computer software can help get you expense house in order. Packages such as QuickBooks™ and Quicken™ can help you tally your monthly bills or expenditures and keep everything well organized. I like doing my family’s expenses on QuickBooks.
Rule #2: Analyze Your Expenses
After you have organized your expenses over the past three months, look at the biggest expenses first. The number one expense is likely to be your mortgage payment or rent. If it’s a home mortgage, research your market frequently on the Internet to make sure you have the best interest rate possible. If you’re renting, check comparable rentals every three to four months to see if you can get a better deal elsewhere.
The next big expense may be car and homeowner’s insurance. Every six months, look for the best possible rates. Insurance rates vary significantly, and many insurance companies are very willing to save you money. Please don’t let your friendly relationship with your insurance agent get in the way of saving money. If you can get a better deal on the same coverage, say goodbye! Too many times I’ve had people who could be saving thousands of dollars on insurance over a couple of years’ time tell me that their insurance agent is a good friend or a family member, or that they’ve been with him or her too long, and don’t want to cause hurt feelings. Well, your insurance agent doesn’t pay your bills. Maybe you could give him or her a financial tip: Work for a more competitive insurance company!
Because you are now your family’s CFO, you get to fire poor producers or people who cost you too much money. Do it tactfully, but fire away. Hire the insurance person, CPA and financial advisor who’ll give you the best service and the best rates. They are out there if you do your due diligence and research.
Next, credit cards. Take a look at all the credit cards on your expense list. I am a firm believer in paying credit card bills in full each month.
