Women & Wealth: Insight for Action (Part II)

By Meg Gaisford Welborn, GW & Wade Counselor on December 18, 2017

What do women want to understand about wealth? What better way to understand than to ask them? So we did. Here is what some of our clients said:

  • “Staring at corporate balance sheets all day long is one thing, but how can I use a personal balance sheet to organize my own finances?”
  • “I want to know more about spending and cash flow beyond our monthly income and bills.” 
  • “I want to understand how to plan for life’s unexpected events and how to provide some security for my children and grandchildren.”

In our earlier posting, Women and Wealth: A View from the Frontline, Part I, we explained that managing your wealth requires insight into what you need, when you need it, and which asset classes are appropriate for different and changing situations. We believe this insight comes from understanding what you have, i.e., a personal balance sheet.

Balance Sheet

A personal balance sheet provides an overview of the financial assets you own and liabilities you carry: the value of your house, your investment and retirement accounts, the mortgage on your house, your car loan and line of credit, the cash value on your pension and insurance plans, etc. Add all of this together and you get an overview of your net worth. Based on your net worth, you can begin to project at what point you have enough assets set aside to do what it is you want to do with these assets – such as pay for your children’s college education, protect your family in the event of an unforeseen injury or illness, and/or to comfortably retire.

Spending and Cash Flow

At its most basic, proper cash flow management equals net positive income, namely, earning more and spending less. Yet, effective cash flow management is not merely about insight into what your monthly expenses are. It is also understanding how your earnings, fixed and discretionary expenses, savings, and taxes work together. 

Here is How to Start

Look at the last 12 months of your checking account statements and figure out the average monthly deposits and withdrawals. What does that look like? As long as you are net positive, make sure that you are taking maximum advantage of pre-tax deductions to your company savings plans and Health/Flexible Savings Accounts. Additionally, set up an automatic transfer of a percentage of your paycheck to your savings account.

From your withdrawals, look for unnecessary expenses that you could eliminate to increase your positive income to plan for future shortfalls. Most importantly, you should have an emergency fund, typically held in a high yielding savings account that holds up to twelve months worth of living expenses.  

Ultimately, managing your cash flow ensures that your expenses are covered, you are spending your money exactly as planned, you have liquidity when you need it, and you are saving to build wealth and security.

Unexpected Events

Once you have your personal balance sheet complete and your cash flow under control, you can check them off your list and file them away, right?  Wrong.

Life happens. Things change, as will your balance sheet and your spending.  You might sell your home and payoff your mortgage, take a leave from your job to care for a sick family member, agree to become an angel investor in your daughter’s start-up, or decide to take the lump-sum distribution option instead of the monthly pension. What do any of these events look like financially? Understanding the implications of any and all of these is so much easier with an up-to-date balance sheet and cash flow review.

Here’s an Example

You have just found out that your company has been purchased and it is time for you to find a new position. Given that finding a comparable position can take up to a year or more, this will significantly impact your cash flow. Here is where that emergency fund kicks in.  By having this fund, you have given yourself time to find the right job without feeling the pressure to take just any position. Even if you have plenty of assets to weather a long-term job loss, having an emergency fund will prevent you from having to liquidate any of your investments at potentially inopportune times to raise cash to live on. With simple planning, job loss is one of life’s unexpected events that you can prepare for.

To Close

We regard your personal balance sheet as the starting point to helping you manage your wealth. Insight into your income, spending and investments and how they interact shows you what you need to live on annually, what your savings rate is and what you can afford to spend now and in the future. Armed with this information, you can begin to understand cash flow and how to plan for life’s intended and unexpected events.  

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The information provided above is general in nature and is not intended to represent specific investment or professional advice.  No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.  

Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:

Laurie Gerber, Client Development

GW & Wade, LLC

T. 781-239-1188

lgerber@gwwade.com 


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