There are innumerable things that people talk about at leisure. From the weather and local news to stories from the past and dreams for the future, conversations among friends, family, and acquaintances are rich and diverse. However, there is one crucial subject that people often shy away from discussing. And that is the subject of money.
Personal finance and money matters are often hushed in everyday conversations. This is reflected in the low levels of financial literacy in the country. As one survey by the National Center for Financial Education revealed, despite an overall literacy rate of over 80%, only 27% of Indians are financially literate.
Fortunately, there are many ways to fix this. And one of the steps in the right direction would be to include money in everyday discussions. Here are five must-have money conversations for everybody.
Planning your life goals
One of the most critical discussions you must have as a family is about life goals to aid your financial planning.
Defining shared and individual life goals can help you to build a more effective financial plan. Shared goals could include saving up for your dream house or creating a retirement fund. Individual goals may be more specific, like buying a premium gadget or your spouse planning to pursue a degree abroad.
Factor all these life goals into your financial plan, and the first step towards this is opening up the dialog surrounding these subjects. Budgeting is also an integral part of this discussion since it helps you start saving up for your goals.
Follow some tried and tested rules to ensure that you save and invest towards your life goals. Try to save before you spend. You can use the 50-30-20 budgeting strategy to allocate 50% of your income for your needs, 30% for your wants, and 20% for your savings. The bottom line is that your discretionary spending should never get in the way of your savings.
Preparing for emergencies
Your savings can help you meet the goals and planned expenses. But what of the unexpected emergencies that come your way? A sudden medical crisis in your family or a substantial home repair due to a natural calamity can derail your financial plans.
An emergency fund can help take care of these unforeseen expenses. And this is another money conversation you should have with your family. Discussing the concerns of your family members in an open forum can help you make the right decisions for building an emergency fund.
Ideally, your emergency fund should be enough to cover six months’ worth of expenses. However, you may wish to save up more based on the needs of your family. An emergency fund should also be liquid and easily accessible, so you can effortlessly access the funds needed during a cash crunch.
Sharing details of how the family members can access these funds will bring in more confidence and prepare everyone to handle challenging situations calmly.
Estate planning
It might be a sensitive topic to discuss with your spouse and your children, but it is undoubtedly an essential conversation to have. If you have multiple dependents, such discussion provides clarity regarding your assets allocation and estate, business, and family-related wishes in case of your unfortunate demise.
It also helps avoid dispute in the future and makes it easier for the future generations of your family to receive the inheritance you wish to pass on.
A legal professional can help you draft a will and take care of the finer details involved in estate planning.
The question of debt
Talking about debt can be another sensitive subject for most people. Some people easily handle a handful of credit cards and a couple of loans without buckling under the pressure, while others prefer to steer clear of debts entirely. You’ll never know which category you belong to unless you open up the discussion about debt.
If you are talking about this with your spouse, seek clarity on issues like whether you wish to take on any debt, who would be in charge of repaying it, and how much debt you can take on with your combined incomes. If you are holding this conversation with your children, explain the rationale for your decision and educate them about possible implications.
Retirement planning
Retirement planning is another vital area that is often overlooked, especially by younger people. When you are just getting started with your career, retirement is the last thing on your mind. However, this is something that you need to pay attention to right from your 20s.
Be clear about the age up to which you wish to work, and get a good idea of the kind of lifestyle you want to lead post-retirement. Such clarity can help you chart out a financial plan to build up your retirement fund. The younger you are when you broach this subject, the longer you have to plan for your post-retirement life. And with time on your side, you can take full advantage of the power of compounding.
On the other hand, a delayed retirement plan could mean that you may have to compromise on some of your post-retirement goals.
Summing up
There are numerous ways to improve your understanding of personal finance, and talking about money is one of the easiest ways to get started. Opening up these discussions may not be easy at first. However, it is a necessary step towards financial freedom. You can get together with your partner and sign up for a course, or you can even approach a financial advisor to understand the basics of money management.