MM015: How to Create a Money Binder
If you manage your family's personal finances, what would happen if the worst happened and you were no longer "available" to manage the household finances? In our house, I manage the finances, and Mrs. Modest is perfectly okay with that. If something happened to me, I don't know if my wife would know the location of all our assets. Enter, the money binder. In today's episode we talk about the importance of a money binder and how to create one today. IN THIS WEEK'S EPISODE * The importance of a money binder * The key components of a money binder * The importance of defining your investment philosophy * A discussion on managing passwords How to Create a Money Binder A money binder is much more than simply a list of your bank accounts. Your money binder is a key component to your personal finance plan to ensure your loved ones are able to keep your personal finance plan in place if something unfortunate happened to you. Below are the key sections that should be included in your money binder. So, go out and grab yourself a three-ring binder, with a couple of section dividers and get to work on creating your money binder. Money Philosophy This should be the first page in your money binder. This is the executive summary, the single piece of paper (or two) that outlines your entire money philosophy so that your loved ones can continue where you left with your investing, saving, wealth generation. This is like your manifesto. Personal finance is just that: personal. There are number of ways to approach personal finance, and this intro document gives you a chance to chart the course for the next captain of the personal finance ship. You can lay things out any way you'd like. You can write it as a step-by-step document so your loved ones can follow in your DIY personal finance steps, or you can write it in a way that a professional that you trust and recommend can review your money philosophy and strategy and advise your loved ones based on that guidance. In addition to outlining your philosophy, use this area to give a quick State of the Budget report. Just like the President's State of the Union address, give an update on the health of your personal finances. As with anything over time, your money philosophy will likely change over time. And, if you're including the State of the Budget update, you'll need to update this cover sheet periodically. At least annually, but maybe semiannually or quarterly depending on your situation. When you update the document and as you insert it into the money binder, sit down with your loved ones and walk them through the details and updates. It just helps keep everyone on the same page. Key Contacts The first section of the money binder includes the contact information of the key people your loves would need to contact in the event you're no longer able to manage your family's finances. This list might include your accountant, financial advisor, life insurance agent, benefit plan administrator from work, estate/trust attorney, banks, etc. Include contact name, phone number, email address, mailing address, policy numbers, account numbers and any other pertinent information that they would need to verify that they can access the account. Net Worth Statement Your mileage might vary depending on the complexity of your personal finances, but here is where you can track all of your net worth and your assets. It's somewhat similar to the Key Contacts section, but here you'll want to include recent statements from your bank accounts, retirement accounts, investment accounts, business income statements, real estate, cash-value life insurance policies, loans, mortgage, etc. This is more of a high level section just to outline all of your major assets and liabilities. Don't get too in the weeds with this section.