In many families one person handles the finances. In our case, I handle everything about our money from budgeting to investing. My wife has no interest in taking over this responsibility. And that presents a potential problem.
What would my wife do should I get hit by a truck? How would she handle our investments? Would she even know what accounts and investments we have?
These and other questions led me to create what I call the Money Binder. It’s a binder designed to give my wife everything she would need to handle our finances should I be unable to do so.
The Money Binder
It's a simple 3-ring notebook that contains everything anybody would need to understand our investments, insurance, wills, trusts, and even passwords. It's intended to give my wife a complete understanding of our finances and how to handle them going forward.
It's more than just a list of assets and liabilities. The Money Binder walks through my investment philosophy and provides concrete steps on how my wife can step into my shoes if the need arises. I've also written it so that my children or a trustee could do the same thing.
Let's look at each section of the binder:
Table of Contents
The table of contents is a lot more than just a list of the binder’s sections. Here I describe each section in detail. For example, here’s what you find in the Tab 2 section related to the Net Worth Statement (edited to remove some confidential information):
Tab 2 contains our net worth statement, which lists the assets we own and the debts that we owe. Also included are supporting documents for our assets and liabilities.
The vast majority of our investments are held in two 401(k) accounts and multiple retirement and taxable (non-retirement) accounts. I’ve taken two approaches to investing. With our retirement accounts, our investments are in a handful of primarily low-cost index mutual funds. These are mutual funds that seek to mimic certain stock and bond indexes, such as the S&P 500.
For our taxable account, I’ve invested in a few high-quality individual stocks.
Whoever is reading this may feel overwhelmed right now. I suggest a simple solution: Hire Vanguard to manage all of the investments. Vanguard offers a service to manage investments for a very low cost (.30% of assets managed as of January 2016). The service is called the Vanguard Personal Advisor Service. They will invest the assets in several well-diversified low-cost index funds at Vanguard. It’s the smart way to go.
One potential hiccup: selling the individual stocks that I owned may trigger taxes. It may also be a bad time to sell if the stock market is down. Here you may want to seek [our accountant’s] advice in terms of taxes and timing. But I wouldn’t lose too much sleep over it. Remember that the goal is financial security, not squeezing every possible dime out of every investment. If I’ve done my job, you should be well cared for financially.
One final thought: regardless of how you decided to handle our investments, remember one very important thing. A time will come when the market is crashing, and you’ll be tempted to sell everything and move to cash. These times usually involve a lot more than just a falling stock market. We may be at war, unemployment and inflation may be sky high, or the banking system may be on the verge of collapse. Dark skies ahead.
Don’t sell! Think about all of the bad stuff we’ve gone through in the past WWI, the Great Depression, WWII, the Korean War, Vietnam, 9/11, the Great Recession, etc. The economy and the markets move in cycles. The best investors know this and never panic during bad times. Just stay the course.
One thing that will help you stay the course is a simple rule never invest money in the stock market that you’ll need in the next 5 years. This will help you sleep at night when the market is in turmoil.
As the above demonstrates, this binder is as much about education as it is alist of accounts. I've handled the investments in our family; my wife has no interest in doing so. But the day may come when she is forced into that role, and I want to offer as much guidance as I can.
The first tab lists contact information of the key people my family would need to contact in case the worst happens. In our case, the list includes our trusts and estates attorney, accountant, benefit plan administrator (for our business), life insurance company, and primary bank.
For each, I included a contact address and telephone number. I also include some explanations where necessary. For example, the life insurance contact information includes my policy number.
Net Worth Statement
It’s important to track your net worth. For this binder, I include footnotes that provide useful information to my wife. Here I focus on financial assets, our business, and real estate. What you won’t find are personal possessions, cars, or other low-value assets. The goal here is not to document every last thing we own down to the dishware. Rather, it’s to give the reader a clear overview of our key assets and all of our liabilities.
Behind the net worth statement are recent statements from all bank accounts, retirement accounts, and taxable accounts.
>> Personal Capital tracks your investments and updates your net worth automatically.
Here I keep a copy of my life insurance policy along with information on how and where to submit a claim.
Wills & Trusts
In this tab, we keep copies of our wills, trusts, durable power of attorney, and advance medical directives. The originals are kept in a safe deposit box.
It's one thing to prepare your own finances for your eventual death. It's an entirely different process to prepare a business. In my case, my wife and I are the only employees of the business. Further, I know a lot more about running the business than she does. As a result, I've spent a lot of time preparing documentation for my wife and children about the business.
Specifically, I've been preparing documentation that would enable anybody to run the business and understand the financials. In this regard, I've been inspired by the excellent book, The E-Myth Revisited by Michael Gerber. I've also been using SweetProcess, an online tool that helps businesses created repeatable procedures and processes.
Finally, the last section deals with passwords. Here I take an unconventional approach. What you won't find are passwords to our financial accounts. In fact, I'd argue that those passwords are the least important. Why?
Upon the death of an account holder, the estate will notify the financial institution. For retirement accounts like a 401(k) or IRA, the financial institution will transfer the account based on the designated beneficiary. Many taxable accounts are held jointly and transferred to the joint account holder. The point is that the passwords to the online accounts won’t be required to handle these accounts.
In contrast, try getting a loved one's password from Facebook or Google. Good luck.
Of course, simply listing these or other passwords in a binder is not safe. While it may be unlikely that somebody would break into our home, find the binder, and take the passwords, it's still a risk. Further, there is always the risk that a friend or family member might find the binder.
So what’s the solution? In our case, the password tab provides details on how my wife or loved ones can access my passwords. I use a password manager called Dashlane. With Dashlane, I can provide emergency access to all or just some of my passwords to anybody I want. If that person requests emergency access, I will be given a set period of time of my choosing to reject that request. Of course, if I’m dead or incapacitated, then my loved one will be granted access at the end of that time period (in my case 2 days).
The above is how I've structured our Money Binder. There may be other sections or information that your specific circumstances require. The key is to provide your loved ones with the information they need to handle the finances in the event of your untimely death.
Finally, my wife and I walk through the binder together once or twice a year. This is critical. It gives my wife a chance to ask questions. It keeps her informed about our investments. And it gives me some comfort that she would be able to handle our finances if need be.