Its not uncommon for families to have a designated money person. Some families may have one spouse who takes care of the bills, while the other takes care of the investments. In other cases, it may be completely one sided with one spouse taking care of the household financial issues.
In our household, I’m the financial enthusiast, and my wife is not quite as interested. As such, I was naturally elected as the family Chief Financial Officer (CFO). While looking after the bills, savings, insurance, investments and credit cards is a big job, it is something that I am content to manage.
Happy as I may be optimizing our finances, one big risk of being the family CFO is poor succession planning. If I kick the bucket tomorrow, I imagine that it would be very challenging for my wife to pick things up where I left off.
Having said that, to help with succession planning, I’m writing this article to help guide my wife in the event that she needs to succeed me as the head financial honcho.
Lets get right to it and take a look at the big picture – I like to view finances in layers or even a pyramid.
At the base of our financial house, we have insurance. We have all the basics including: life insurance; disability; home; and, automobile. I have all the details printed on the succession planning workbook (and a usb drive) stored the secured location that we have previously discussed.
Life insurance will come in handy when I pass away. I have regular private term insurance and some coverage through my work. We don’t have a huge amount of coverage because the goal is to be “self insured”. As you have heard me say this many times before, financial freedom is something that we are working towards. As I write this today, we are well underway to becoming self insured.
Income and Expenses
Next layer, we have income and expenses. I am hoping that by the time you read this, we are already living off dividends produced from our portfolio. If not, then don’t worry, the life insurance proceeds, cash savings, and dividend income will provide you with enough cash to to pay for recurring monthly expenses. While you may not have enough cash flow to live the high life, it will be enough to live comfortably and enough that you won’t “need” to work for money to pay the bills.
As you already know, our income sources are from salary, dividends from our small business, and dividends produced from our portfolio. Our small business also has a portfolio that produces dividends. Note that when I pass away, you will automatically inherit my portion of the company shares tax free (via spousal rollover). The dividends generated from the corporate portfolio can flow through to you on a very tax efficient basis. Our accountant is aware of this setup, so please contact him to explain all the details. As for our regular investment accounts, more on this below.
Flowing almost all of our expenses through a credit card has not only resulted in thousands of dollars in cash back over the years, it has allowed us to gain insight and control over our spending patterns. We have our credit cards connected to a mint.com account (login with my personal email address). Our average monthly burn rate is around $4,000 to $4,500/month (as of this post). Providing that you can stay within those bounds, cash flow should not be a problem.
Tracking net worth has been a big part of this blog and honestly, our overall financial health. As you already know, your husband is a little obsessive compulsive when it comes to tracking numbers. I believe that you cannot get to where you want to go without knowing where you are right now. For entertainment value, you can follow our net worth journey from 2006 (before we even had kids!) right up until 2014. After that, you can follow the numbers on the spreadsheets attached to my google account.
In the most simplest form: Net Worth = Assets – Liabilities.
I have listed our assets in the offline succession planning workbook, but they basically include our house, investments (RRSP, TFSA, non-registered), and shares in our small business. Some people count cars as assets but I keep them off the balance sheet because they depreciate so fast.
Thankfully, we have very few liabilities. With our principal mortgage paid off, the only real liabilities we have left are tax liabilities (when we sell investments), and what we currently owe on our home equity line of credit (HELOC). As I’ve put you to sleep more than once by talking about the Smith Manoeuvre, the HELOC is used to buy long term investments. In this case, dividend stocks.
The trick with the HELOC is that it can pay for itself, this strategy is called capitalizing the interest. All of this is done through our BMO account, please view the diagram here. Basically, the HELOC will automatically charge our chequing account monthly interest. Simply login, and transfer the same amount from the HELOC back to the chequing account.
Registered Education Savings Plan
This is an important topic, especially if I pass away before the kids hit University age. I have setup a family RESP account for our kids with TD using the TD e-series mutual funds. With this account, the government will kick in $500 for every $2,500 we deposit annually. Even if you don’t want to manage the portfolio in there, simply deposit $5,000 annually (for the 2 kids) into the account to get the 20% bonus ($1,000). You can keep depositing until the kids get old enough to start University. Again, all login info is indicated in the succession planning workbook.
Moving up near the top of the pyramid, this is where it can get a little complicated for someone not as experienced in personal finance. Actually, it can be complicated for most as we have a number of investment accounts – perhaps too many.
Our investment accounts and primary investments include:
- RRSP – US dividend stocks and international index.
- RESP – Indexed to the market as indicated above.
- TFSA – High income dividend stocks/real estate investment trusts.
- Non-Registered – Dividend growth stocks (shared between both of us).
- Corporate – Dividend growth stocks and USD (shared between both of us).
- RRSP – US and International index.
- TFSA – Canadian index, real estate investment trusts, bonds.
I have touched on some of these accounts previously, but they are mostly held with Questrade, CIBC, iTrade and BMO. As you can see from the list above, I am a fan of dividend investing. It use the strategy because it provides tax efficient passive income source and rewards long term investors.
The investments held in these accounts are, for the most part, buy and hold stocks and ETFs. Ideally, try to leave the accounts alone and keep collecting the dividend payouts. Hopefully by the time you read this, the dividends will be setup to deposit directly into your personal account. I have also left you names of people that I trust regarding investments in case you need guidance.
Hope that I didn’t miss too much in this article. As mentioned a couple of times already, the details are in the succession planning workbook that I created. However, hopefully this article acts as a big picture guide that ties things together.
I have full confidence that you can manage the financial household and continue to build wealth. The trick now is succession planning going forward with the kids. But that’s for a future article.
Back to you. Are you the household CFO? If so, what is your succession plan and how will you make sure that your spouse/partner can carry on the torch?