We are not usually comfortable talking about money with friends, family, or even with our spouses. But it's time we changed that. These discussions need to be had, now more than ever.

As a family, you work towards goals that further not just yourself but the family as a whole and how you manage household finances is an important aspect of that. Therefore, it is imperative to talk about money and align financial goals to ensure each family member is on the same page.

The impact of Covid-19 on all our lives has certainly made us realise that. It invariably has a medium-to-long-term impact on everything - right from familial dynamics to how we save, manage and spend money. Thus, overcoming the reluctance to discuss money matters is a step in the right direction for creating a positive perception about it and space for everyone to share their thoughts, fears and ease the burden.

Here's a practical step-by-step approach shared by Prateek Mehta, co-founder, Scripbox, to follow to have these discussions with family.

Step 1: Prepare for the meeting

Ensure you have most of the financial data in black and white. If you don't already have a structured budget and expense sheet in place, make an estimate of your monthly expenses vis-a-vis your income and savings / investments.

Step 2: The approach

It is crucial to have regular and transparent discussions about money with your spouse because it impacts making decisions about budgeting, saving, investing, cutting the right corners especially in times like these. For example, having discussions about how you can defer home renovations, buying a car or purchasing jewellery until your savings rate is in line with what is required for your goals can help take the right financial decisions now and in the future.

If you have young children or teens, it is a great way to initiate a healthy outlook towards finance, understand its value, and how to prioritise spending and budgeting. Having discussions about putting off non-essential expenses such as upgrading smartphones to ensure that their education and other basic needs are not compromised can help them negotiate needs vs. wants. It will help them become financially adept individuals.

Step 3 - Assess

a) Budget & Expenses

b) Goals

c) How am I doing

Understandably so, due to the pandemic, all big or small purchases that you intended to make require a second thought. Equally importantly, your savings and how you make the most of your savings also needs a second thought if you are starting out your wealth creation journey. If you have been investing, a re-look at goals is needed. Lastly, the first two will give you a good picture of your financial health and guide towards appropriate next steps.

A: Assess your budget and expenses: How much are you saving? As a thumb rule, it is recommended to have at least 30 per cent of your income put aside for savings and investments. If you are not, the lockdown and the resulting restriction on leisure expenses have presented an opportune moment to relook at expenses and what can be trimmed. Discussing this with your spouse and family and doing this exercise as a household is key. It will help you make a practical list as well as postpone all non-essential expenditure until your savings goals are met.

B) Assess impact on goals: How does the situation affect the family's immediate and long-term financial goals? The economic slowdown has a massive impact on employment and salary cuts. This will impact your ability to save and thus, goals such as your child's education, retirement will take a hit. Which are the other near term and longer-term goals that would be most impacted? How bad is the hit and what can be done to fill the gaps? Discuss these and work towards coming up with solutions together. You may have to make some tough choices, but it helps set the expectations and how to power through.

C) Finally - how are we really doing? Is there an emergency fund in place that can cover at least 6 months of expenses in case there is no income? How much of your income goes towards servicing debt and EMIs? Having debt along with income uncertainty can have serious implications. This along with A) and B) will give you a good understanding of your financial health and help kickstart the discussion on making appropriate changes. Ask family members to pitch in and take responsibility, share ideas to cut costs and expenses they can let go.

Conclusion

A good way to close the discussion is to agree on when to revisit the conversation. Periodic reviews are crucial to establishing mutual commitment, assessing how one is doing and maintaining open lines of communication.

The more frequently the family has these money-related conversations, the easier and more comfortable it gets. Recurrent conversations will allow you to take discussions further and touch upon other topics such as estate planning.

These meetings will also allow you to celebrate financial milestones you achieve together, where money matters are not avoided, rather discussed, encouraged, and collectively addressed. A positive from this pandemic could be the start of this good habit together as a family!

Source - IANS