Building Your Money Foundation With a Personal Financial Guidebook

Personal Financial GuidebookI’m an estate planning attorney by day and one of the major things I do to protect my clients is help them to protect all of their assets should anything ever happen to them. One of the ways I do this is by helping them put together what I call a wealth planning spreadsheet.

What in the world is a wealth planning spreadsheet you ask?

It’s the framework behind my Personal Financial Guidebook, which I will introduce you to in just a bit. Essentially, the wealth planning spreadsheet is a tool that outlines every account my clients’ have, where they are held, how much is in them, the contact information for the bank or financial advisor, etc.

The purpose of this spreadsheet, as I mentioned before, is to protect my clients’ assets should something happen to them. I want to make sure that their loved ones will have accounted for every single bank account, life insurance policy, and investment account that they are entitled to.

I mean, what sense does it make to save all this money and work hard to build a nest egg if it doesn’t end up in the hands of the people or organizations you want it to if something should happen to you?

The reason I’m talking about this today is that over the weekend I came across a post from Jim Wang of Wallet Hacks. He takes this idea of a wealth planning spreadsheet to a whole new level, and to be honest, I love it. He advocates using a spreadsheet to keep track of all of your accounts, just as I do with my wealth planning sheet. But he also uses this spreadsheet as a basis for a regular net worth calculation, as well as to prepare a document that he calls a “money field manual”.

This money field manual is very similar to the financial guidebook I will talk about shortly, but with a few major differences.

What is a Money Field Manual?

The money field manual, as Jim explains it, is a document that outlines where all your accounts are located, but also addresses the purpose of the account, what it is used for, and how it fits into your overall investment plan.

Jim divides his personal document into several sections, which include an explanation of his net worth spreadsheet followed by a section for each type of account that he holds. This may include bank accounts, investment accounts, retirement accounts, direct investments, insurance, etc.

Who Needs a Money Field Manual?

Honestly, and with all due respect to Jim, most people probably do not need a document as thorough as the money field manual he describes. Not because it isn’t extremely helpful and useful, especially in a time of stress (it is), but because they just don’t have enough financial accounts to make it worth their while.

If you look at Jim’s financial situation, it is quite complicated. He seems to follow Ramit Sethi’s advice (although I cannot verify that) and has multiple financial accounts at multiple institutions for multiple reasons. A money field manual is a natural extension of this complexity. (For a snapshot of what Jim’s finances look like, click here).

Most people, on the other hand, have a simple checking and savings account, a retirement account or 401(k), and maybe an investment account. (I’m not judging the merits of this approach, I’m just relaying what I see most often in my role as an estate planning attorney).

In other words, most people just aren’t organized enough with their finances to need a document like this.

I’ve put together a lot of wealth planning sheets for my clients and I am constantly amazed at how uncomplicated most of their finances are. Having a single spreadsheet that shows where all of their accounts are located is plenty to make sure their heirs have a handle on things.

The second reason that many people will not need a document like this is that, legally speaking, it is unnecessary. Although it would be helpful to someone who will step into your shoes to manage your finances if something were to happen to you (like a spouse), this isn’t typically what happens.

For starters, if you were to die, all of your accounts would immediately become frozen. No more transfers, no more withdrawals, no more anything from those accounts. Unless you held your accounts as a joint tenant or had a payable on death designation (POD) added to your accounts, all of them would go into your probate estate to be divided among your heirs.

Second, if you become incapacitated, this document might be helpful so long as you have designated a durable financial power of attorney who is capable of managing your financial accounts. But even in that situation, unless you are financially independent (which most people are not), your income would stop (unless you have disability insurance, which again, most people do not), and your family would go into financial crisis mode.

Your elegant system for managing finances in the good times would be, for all intensive purposes, shot to shit.

So if you died or became incapacitated this document, while helpful, won’t do your loved ones much good.

But…

Why I Still Love the Idea of a Money Field Manual

I still love this idea.

Why?

Setting aside my “pain in the ass lawyer brain” for a moment, this really is a great idea if you are looking to build a solid financial foundation for your money and your investment portfolio.

It doesn’t really matter if this document will never fulfill the purpose that Jim Wang intended it to. If it helps to get YOU organized financially, that is what really matters.

It serves as an instruction manual for YOUR money and YOUR accounts. If you forget why you have a certain account or what your goals are, you can revert back to this document and know that your financial life is under control.

It provides you with financial peace of mind.

For all of those reasons, having a money field manual is still an absolutely fantastic idea.

Introducing the Personal Financial Guidebook

So while I clearly like the general idea of a money field manual, I would make a few tweaks to this document. So for me personally, I have created the “Personal Financial Guidebook”. The purpose of my guidebook is to explain to both me personally and to my heirs what my goals and visions are about money, and how I want my money to be used in the event that something were to happen to me.

I’ve changed the five parts proposed by Jim into the following sections:

  • Introduction and Overview
  • Investment Goals and Philosophies
  • Net Worth Spreadsheet
  • Explanation of Accounts
  • What Should Happen if Something Happens to Me

Let’s look at these one at a time.

Introduction and Overview

This is a basic introduction to this document and contains an explanation of what is included in the document. Pretty straightforward.

Investment Goals and Philosophies

This section will discuss your current investment goals and philosophies.

You may talk about things such as your risk tolerance, why you are overweighted in Facebook Stock (as I currently am), why you invest in Vanguard Index Funds, how you earned your money, how you would like to see it spent (if at all), charitable goals, what would happen if you received a large influx of cash (i.e. life insurance proceeds), etc.

This is a great way to preserve your legacy and teach your children about your core money beliefs, especially if you are no longer there to do so yourself.

Net Worth Update

This section will contain information about your current and past net worth updates. I think it is helpful for your family to see where you stand financially now, as well as how far you have come. So rather than just explaining what is in the net worth calculation, give your family a picture of how you got to where you are currently.

Explanation of Accounts

Here is where you will go into detail about each account you own, why you have it, what the money is earmarked for, etc.

I go back and forth about whether this section is actually necessary as most of this information would be included in the wealth planning spreadsheet that I prepare for my clients (and for me personally).

I leave this up to your discretion. Some people are more comfortable with word processing documents rather than spreadsheets (who are these people, and why are you reading my blog?), so this may be a more manageable way for them to lay out all of this information. 😉

What If Something Happens to Me?

In this last section, you will give instructions on what should be done if something were to happen to you personally. You may want to include information on where your estate planning or trust documentation is located, as well as who your lawyer is.

Where to Put Your Personal Financial Guidebook?

Because of all the sensitive information contained in this document, you want to make sure it is properly protected. Leaving it on your computer is fine, but the people that need to get to it may not be able to find it.

I recommend that you update the document regularly (quarterly or annually), print off a copy, and leave this information with your estate planning documents. You may want to print off a separate copy to leave in a conspicuous file in a desk drawer or briefcase. Basically, you want to have this document somewhere where it will be found if something happens to you.

We leave all of our important documents in an UNLOCKED fireproof box in our master bedroom closet. You can pick up a box like this from Lowe’s or Home Depot for about $50.

Do NOT leave this document in a safe deposit box – it will do nobody any good if they can’t access the box without a court order after you die. This is the same reason we don’t lock the fireproof box.

Do You Have a Personal Financial Guidebook of Your Own?

I’m curious if anyone is already implementing a document like this in their own financial lives? Please leave a comment below and let me know!