Leading a household through a global pandemic is not a role most of us anticipated having during our lifetimes. Working from home alongside a makeshift school or managing household duties in addition to virtually caring for loved ones is only part of the changes many households are finding themselves experiencing. The new configuration of life, work, and home can be stress-inducing and is testing even the most steeled of leaders.
Part of our role as a household leader includes the task of managing the household finances. As defined in The Next Millionaire Next Door, the household CFO works to ensure the household is building wealth over time, which leads to the following “help wanted” ad on page 123:
The Household CFO will oversee the household’s budgeting and financial planning. He/she will be required to create, manage, explain, defend, and negotiate household budgets annually, and monitor spending and saving related to said budget. He/she will be required to plan for the financial security and longevity of the family, focusing specifically on retirement planning, college savings planning, and other large expenses in the foreseeable future. The Household CFO will be required to balance checkbooks, file tax returns, pay bills on time, create financial plans, create estate plans, research investments, monitor investments, and generally run all financial matters for the household. The Household CFO will serve as a check on household spending, and thus will work closely with the following individuals: Household Chief Procurement Officer and his/her team members (read: spouse/self and/or children). The Household CFO may choose to outsource any number of his/her responsibilities to trusted advisors, and therefore, part of the Household CFO job may include the ability to research and hire quality professionals who act in the Household CFO’s household’s best interests.
Household financial management is a complicated job requiring the performance of a broad range of tasks. Many of us were not prepared for this role in the first place, much less so when faced with a global crisis. Add to the new normal of our lives the continued need for a Household CFO to perform this personal finance job with excellence so that long-term financial goals can be met, notwithstanding the short-term crisis in which we all find ourselves.
How does the current crisis impact how well we perform on this job? What does this all mean as you may be sitting at home with your new and perhaps unwelcome operational procedures? Taking the factors we know relate to being a successful household CFO, along with sage advice from psychologists and experts in the field of crisis decision-making and wellbeing, we can think about how to manage through this global crisis from a behavioral perspective. Consider a few points as you work to ensure your Household CFO performance doesn’t suffer during this downturn:
- Check your emotions. When we are experiencing extreme distress, as a general rule, it is not a great time to be making any large-scale, life-altering decisions. Psychologists often advise those who suffer something like the death of a loved one to hold off on making decisions in the immediate aftermath to ensure their emotional states allows them to make the best long-term decisions. As you experience an upheaval to your lifestyle and a barrage of news headlines that are less than comforting, recognize that external factors may be affecting your decision-making, even if you are typically an expert at managing your financial life. Your ability to keep a level financial perspective will require you to understand your typical response to stress and how much you tend to feel negative emotions like fear and anxiety. In other words, understanding the level of your emotional stability (another of the Big Five Factors of personality), you will need to set yourself and your household up in a way that doesn’t lead to ignoring budgets with panic buying, getting off schedule with paying bills and preparing taxes, and making hasty investment decisions.
- Allocate time to managing finances. Prodigious accumulators of wealth (PAWs) report spending 11.3 hours studying and planning for investments each month, while those who are under accumulators of wealth (UAWs) spend 8.7 hours per month. Successful household CFOs also find time to focus on their finances and plan and monitor investments and how their spending aligns with their budget. And, those who are financially successful know how much they spend on each category of consumption every year. Given the upheaval in our work and household schedules, your success as a Household CFO may rely on being able to monitor and manage your finances regardless of who is at home and where you do your work. Carve out specific time during the day and week to handle financial tasks and investments. Ensure this is uninterrupted time, as we know that task switching takes an enormous cognitive toll on our work. Use technology to help you schedule and stick to your plan to tackle money-related details.
- Ignore the herd and the Joneses. Successful household CFOs are high on social indifference – they ignore the consumer behaviors of those around them. We typically refer to this as social indifference. While it sounds harsh, the characteristic of ignoring consumer trends and the lifestyle of others can significantly increase your chances of being successful at achieving financial goals. And, in a time where financial resources need to be maintained carefully, being able to focus solely on your own household’s consumer needs, instead of keeping up with your friends and family’s purchases via social media, will be critical. You and your family will need not only to ignore what your friends and family member are buying (online!) but also the sensationalism in the media around hoarding and prepping. Your decisions need to be aligned with your long-term financial goals and not aligned with the panic behaviors of others.
- Be disciplined in managing finances. Millionaires in both The Millionaire Mind and The Next Millionaire Next Door reported that discipline, resiliency, honesty, getting along with others, having a supportive spouse, and working hard were the top factors that accounted for achieving goals and becoming economically independent. Discipline is at the top. With the markets going haywire and news of massive industry changes coming at us from the media, you may find it challenging to stick to a well-thought-out investment management strategy. The common behavioral biases in investing tend to occur when our emotions get the best of us, and our decision-making is influenced by how we are feeling at the time instead of the facts, plans, and expert advice we have in front of us. If you are on the edge of making an investment decision, determine if your emotional state is conducive to making a good one.
- If needed, seek advice from fiduciaries. At some point, if you’re going it alone, you may consider the help of a financial professional such as a financial planner, financial counselor, or coach. Thankfully, now there are hourly options for obtaining expertise. Still, you will have an onslaught of options, from those who sell products (i.e., they receive commissions every time you buy or sell something) to those who operate under a fiduciary standard and operate in your best interest. Consider the following fiduciary sources for finding a financial professional that will act in your best interest, including the XY Planning Network and the AFCPE.
- Support your team. If you are part of a household that includes a spouse or significant other and children at home, you wear many different hats other than the Household CFO one. Your team is experiencing the same upheaval as you and needs leadership and teamwork more than ever before in more ways than just financial. While managing finances is a critical role, consider if it is a supporting role to that of being a loving spouse, caring parent, or thoughtful caregiver to other family members. And, recall that millionaires across time included “having a supportive spouse” as critical to their success.
We will be sailing through uncharted financial waters in the months and perhaps years ahead. While we all have unique personalities, if we can adopt some of the habits that lead to being effective Household CFOs, our chances for successfully navigating this crisis, and crises to come, is much improved. Thankfully, it is possible to adopt new behavioral patterns and habits when it comes to planning, saving, and spending, especially in a situation where our financial lives depend on it.