Sponsoring an upcoming women’s luncheon called EmpowerHER got me thinking about what advice I would share about financial empowerment if I only had a few minutes. After all, our experience working one-on-one with hundreds of clients gives us a close-up look at how real people handle financial decisions, and how those choices play out over the years.
I landed on three “musts” that our successful clients demonstrate. And these are things that can apply to almost everyone, no matter the age, gender, or net worth.
#1 Know What You Have
This sounds obvious… until you actually try to list everything out.
Most people have a vague sense of their finances. They know where their paycheck lands and kind of what their bills are. But when we try to hammer out specifics, there’s often some fuzziness:
- What types of accounts do you have?
- Are you contributing to a company retirement plan or pension? What does your employer contribute? If you’re self-employed, what arrangements have you made for retirement?
- What benefits does your employer offer that you might not be using?
- What is your actual annual income (not just your biweekly take-home)?
- How much are you saving, and for what?
#2 Know What You Probably Should Have
Once you know what you have, the next step is understanding where you should be—or at least what a healthy financial picture typically looks like.
You should understand where your current financial trajectory is leading. That is: If nothing changes, what will your finances look like in 5, 10, or 20 years?
You should also understand relevant benchmarks:
- Is your pay appropriate for your job and experience level?
- Are you saving enough for retirement?
- Do you have an adequate emergency fund?
- Are you overextended on debt?
You should understand the insurance coverages that are best for your life stage and financial situation.
You should have an estate plan. Estate planning is not just for the wealthy. If you have anything—a bank account, a car, a home, kids—you need a plan for what happens when you are unable to manage your situation, and for when you die.
You should also understand the basics of property ownership, especially as it relates to relationships. Did you know that if you don't have a will, the state of Texas doesn't automatically assume you want everything to go to your spouse? Did you know that income earned during a marriage in Texas is generally considered community property, no matter who earns the paycheck? Do you understand how gifts and inheritances are treated under the law? Did you know you can do a lot of estate planning just through beneficiary designation on your bank and investment accounts?
All of this is a bit like going to the doctor. You need to know whether your vital signs fall within the normal range.
#3 Transparency
Once you have a firm grip on your situation, it's time to consider whether there are any holes in how you've communicated your situation to those who need to know. Transparency and communication work toward buildingwork towa trust. Sometimes families want to ignore difficult topics, whether it’s an adult child who’s always in dire financial straits, a son-in-law a client doesn’t trust, or poor decisions you’ve made you don’t want to share with your kids.
Pushing the hard conversation off to the future does not make the problem go away.
Are there open lines of communication in your financial life?
- With your spouse or partner
- With your children (in age-appropriate ways)
- With aging parents
- With anyone else involved
- With yourself (sometimes that is a hard one!)
Do people know what’s going on, like what you expect them to do with your money when you die, or what your plan for long-term care needs is?
Bringing It All Together
Knowledge is empowering.
When you know what you have, you gain a sense of control.
When you understand what you should have, you gain some sense of direction.
When you communicate clearly, you build alignment and confidence.
Financial empowerment begins with understanding your current situation and how well you are set up to work toward reaching important and necessary goals, whether that’s buying a new home or retiring confidently. Next-level financial confidence comes when you can discuss your situation openly and proactively engage with your loved ones on the things that are important to your life.
Beth Henary Watson is aCERTIFIED FINANCIAL PLANNER™ practitioner and Accredited Behavioral Finance Professional™ at Corner Post Financial Planning.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.