Take your immediate family into confidence while making financial plan

At a recent conference on financial planning, a renowned financial advisor asked all the guests who planned their finances if they had taken their families into confidence? The answers were varied and disparate. Sample this: my -spouse is not interested in financial matters; my children are too small; my parents do not understand much about modern finance, I have already discussed threadbare with my financial advisor, etc. But the underlying thread in the discussion was that hardly anybody involved their families in the process of financial planning.

Why is it so important to involve your family members in the process of financial planning? To begin with, this is an exercise for the family so the family is entitled to know. For all you know, they may come up with some really useful suggestions. But above all, it instills a sense of financial responsibility and pride in the children. They need not get into the nuances, but if the lesson of frugality is learnt then it is well worth the time.

Immediate family must be involved

It is always advisable to involve your family members in the process of financial planning. Of course, this is a confidential document so let it be restricted to the immediate family. But here are some specific reasons for you to involve them in the process:

The first reason is for your spouse and children to get the big picture. They need to understand why you are insisting on frugality. They should see how a small saving today can grow into a big corpus after 20 years. Once they get the perspective, the buy-in will be a lot easier.

The second reason for involving them is a lot more mundane. Quite often, the family does not know the value of your investments, the total loans you have and where your documents are kept. This can become a hassle in an emergency. When you involve your family in the financial planning process, these basic things are taken care of.

Your financial planner is less like an advisor and more like a family wealth doctor. To give you the best advice possible, your advisor needs to also understand your family. Let your spouse and children also get familiar with the financial planner and executor of your will and where they can be reached and how they can seek their assistance.

Your family is entitled to know what goals you have planned and what financial arrangements you have made for their future. When you involve them in the process they understand how goals are set and worked towards. That builds greater ownership in the entire process.

How to get more bangs for the buck? When your family members get involved, they not only give valuable feedback, but they can also make their own contributions. For example, your father may have funds idling in a Fixed Deposit, which he may want to pool in equity funds for the family. Your spouse may have a really workable idea of how to squeeze 20% more savings out of your income each month. Your children will look at the entire exercise more practically and will also share some of best practices their friends are talking about.

It quite often happens that the husband and the wife may have some assets or liabilities they have never spoken to each other about. When you sit down for your financial plan, it builds a degree of trust to come out more openly about the actual situation. Most likely, you can find a simple solution to the whole issue. At least, you will not be up against any last minute surprises.

Discussing retirement and dependency on children is normally a sensitive and delicate issue. More so, if your children are grown up. That is where early involvement comes in handy. From the beginning if children are clear about your post-retirement plans then there is no reason for any confusion or misunderstanding. Ideally, when you plan your retirement and your post-retirement life, make it a point to involve your children too. You must also involve the children and spouse in your will drafting. It is a delicate issue, but your family must always look at it more pragmatically rather than emotionally.

Finally, this exercise is important to ensure that your children also contribute their might to the process. Let us say, your kids currently spend around Rs 6,000 each month eating out. Instead of telling them that it is a waste of money, explain to them that they can easily reduce their expenses half and save Rs 3,000. They must understand that if the Rs 3,000 saved is invested in equity funds, then they could have a corpus of Rs 32 lakh after 20 years, even assuming a conservative return of 12.5%. That is enough to part finance their higher education abroad.

The writer is head of product at Angel Broking