Being able to communicate is important in many aspects of life, not the least of which is when dealing with financial matters. It used to be commonplace, especially within older generations and cultures, to leave the financial decisions and money management duties to the “man of the house” and not include any “outsiders” in on this information. Even today, some cultures and people who are in the latter stages of life still employ the traditional structure of the man handling all of the finances without any input or knowledge from family members or outside parties. Families would shy away from discussing topics like account balances, investment choices, spending habits, debt or anything else that revolved around money. Many people did their own investing and tax preparation, not wanting strangers privy to their information or situation. Times have changed, and people’s attitudes need to as well.
There is no such thing as a mind-reader. That is an undeniable fact. Your accountant does not what you did that will impact your tax situation during the year unless you tell them. Your financial advisor doesn’t know when you have a change of heart when it comes to investing style or whether the investments in your portfolio are a tax benefit to you unless you speak to them. Your family doesn’t know if they need to change their spending habits if you aren’t honest and open with them about the state of the family’s financial affairs. There comes a time when you need to recognize that you have to take control of your life and finances, and sometimes that means opening your mouth and discussing these things with others. Sometimes it means not letting others have full control over your situation. Sometimes it means going into the areas you find unpleasant or difficult to confront and speak openly about. There are three main groups who have the kind of relationship with you where this kind of open and honest communication is important:
Speaking from experience, I can easily say that many people do not have the proper level of communication with the person who prepares their taxes (if they even have one) what they should. I have seen it numerous times: they tell their tax preparer that everything is fine, that there is nothing major to report during the year, only to send in their information in April, and get a shock when they are told they owe money. The thing is, most people don’t even know what causes their tax liability to go up or down, and think that the tax preparer can wave a magic wand to reduce that liability. Let me tell you: there is no such magic wand! The secret to keeping everything on track and manageable is communication. You cannot simply show up once a year and expect to have your ideal results handed to you on a silver platter with no work whatsoever. It takes a team effort to make your tax situation palatable and ideal for your individual situation.
Case in point
Go ahead and choose from any number of people who rush to get their taxes done quickly only to call a week after it was crying that there is something they just got and wondering why I didn’t ask them about it. Or the people who owe money at the end due to capital gains but never bothered to have any withholding taken out or even call so I can set them up with an estimate to cover it. One other thing that needs to be pointed out: when you receive a letter from the IRS or any other agency, you need to inform your accountant right away! I can’t tell you how many times I’ve received requests to handle letters from the IRS that were already past the deadline to respond. All you are doing is making the situation more difficult for yourself when you delay bringing in the professionals.
Here is an example of a relationship that sometimes is too one-sided. Yes, investments can be intimidating. Yes, money managers, financial advisors, wealth planners, or whatever other name you call your financial professional have experience in managing money belonging to others. Yes, sometimes it can seem as if they are always talking. But you need to take the initiative, open your mouth and say “Shut up and listen to me for a change!” if that is the case. There is one big thing in this relationship that comes into play, which is risk tolerance. Many people don’t know exactly what this means, so when their advisor asks about it, they just go along with what the professional suggests. Sometimes it may be based upon the clients’ age and timeline. Other times it may be based upon the professional’s own past experiences. But, if at any point you become worried or anxious about the risk a particular investment option presents, then you need to speak up about it and make the advisor aware of your concerns and uncomfortable feelings. From a tax standpoint, it is of vital importance to keep your advisor aware of any plans you have to relocate. It may seem like a smart move just on the face value of keeping them aware of your contact information, but the benefits run much deeper than that. This is particularly true if you are invested in local municipal bonds. Many people may not make the connection, but most state and local municipal bonds only provide interest tax-free if you reside in that state. Otherwise, if you have to file a state income tax return, that interest is taxable to you. When you inform your broker of your intentions, they have the time to maneuver your portfolio in a way that best takes advantage of the tax-free status of such investments.
Case in point
I recently had a client who moved from Florida, which has no state income tax, to Michigan, which does. Her broker was unaware of the change in the state of residence, so there was no change in her portfolio allocation. The end result was a substantial state tax bill since none of the municipal bonds she was invested in were for Michigan localities. By the time her information was sent to prepare her tax returns, it was too late to do anything about it, and she was stuck with the bill. Had the lines of communication been more open, this situation would have been avoided.
This is often the most important group with which communication needs to be improved. Sure, back in the “old days” money was one of the topics that were off-limits in the household. Unfortunately, because of such a rule, many people grew up not having a firm grasp of the concepts of things such as credit, or how to save, or the warning signs of financial distress. Now, more than ever, it is important to be able to discuss money freely. It is the best way to ensure that younger generations have a solid financial foundation, rather than learning the wrong way to handle finances, such as from celebrities/athletes/musicians who for the most part don’t have the first clue and end up with nothing when their careers are over, or their friends who may come from places where money isn’t as important as image or status. It’s the best way to teach them about the proper use of credit before they go off on their own and find out the hard way that they were doing it wrong. There needs to be communication and boundaries set when it comes to children, spouses, parents. Families simply cannot be allowed to continue on in a manner where ignoring the topic of money is off limits simply because “that’s how it was when I was a kid”. The husband can’t be in control of the checkbook at all times anymore. The wife needs to learn how to manage a budget or balance the checkbook. The children need to know when times are lean so they can develop appreciation for the value of a dollar, and how to be more responsible with money– making the best with less. What happened when the patriarchs of older generations died? The widows were left clueless on the issue of money management. Many couldn’t even write a check out completely or record a transaction properly (I’ve seen it firsthand during my days in the banking industry).
Case in point
I’m currently working with a family with serious tax delinquencies. It not only arose from the parent’s inability to manage their money properly (they never even paid their tax liabilities for several years), but lied to the adult children about their situation. Now, they are faced with a tax bill in excess of $30,000 and the inevitable event of selling their home in order to get back on track. The adult children had to rearrange their lives to find time to travel to the banks and lawyers so they can gain access and assert some control over the parents’ finances. Aside from that, the relationships have been strained: the father feels like he is being treated as though he is the child; the kids are pissed about having to get this involved; the wife, already suffering from memory issues, just doesn’t know what to do anymore.
Open your mouth already
It once was looked at as a badge of honor to be so self-reliant that you could handle every aspect of your life on your own without any assistance from others. Today, many of us would call that stubbornness. There is a reason why many of use outside parties such as lawyers, tax preparers, and financial advisors–they simply know more than us and do only those things for a living. There is also a reason why many people have started getting other family members involved in the financial picture–everyone needs to be made aware of what is going on and do their part to help. There is no reward for being a financial martyr. In fact, the consequences outweigh the benefits greatly. Loss of money and strained familial relationships are almost never an even trade-off in this situation.
Learning to communicate will make for a much more happy home life, and will also keep you on track for a successful financial future.
Have you ever been put in a hole due to your inability to communicate openly? Did you ever witness the effects this has caused on others?