Dorie Fain, The Daily Record Newswire
Cash is king. We’ve heard the saying, but what does it really mean?
Recently a friend reached out to me, asking for advice about his mother’s financial situation. His father had passed away earlier this year, and since that time, with the best of intentions, he has been helping his mother adjust to life as it is now. Wrapped in grief over the loss of their beloved father and husband, they are searching to find their way in this new reality.
At the core of the stress is actually a financial issue I have seen many times throughout my career, having advised grieving widows for years. The absolute fear of not having enough money is a driving factor. In this case, as in many I have seen, the unknown is far worse than the reality. The situation has been exacerbated by the lack of liquid funds available to this widow, creating a scenario where every bill that needs to be paid causes a panic. It’s not that there isn’t money, because there is. It’s that the unknown of how much there is, how much is needed, where it is and how long it will last is causing fear and tension in the daily life of this woman and her son.
After asking more questions to better understand the moving parts to this family, I learned, there is a great deal of complexity in their lives. The financial picture is one of uncertainty. No clear system for how bills are to be paid, how much and when to create cash to cover expenses is causing the fear that things are unaffordable. Keeping in mind that they hope, almost at any cost, to remain in the family home. This being the largest financial asset, compared with the need to generate income to replace what the husband was earning, they are asking -- is this affordable?
Digging deeper into the financial picture, I learned that there are assets invested in stocks that have been sold off each time money is needed to cover expenses. This is at the core of the financial stress for most anyone faced with these circumstances. It is with a thoughtful plan that this is best handled -- particularly with tax considerations, given that many assets have embedded capital gains that will be triggered upon sale of the assets.
It occurs to me that this family is not without “advisers.” There are three different brokerage firms where assets are held. Not one of the advisers has offered to do a financial plan to assist this family since this major life event occurred. There is a longtime family CPA who has not reached out to create the dialogue around financial planning and cash-flow support. There is a trust and estate attorney who worked with the father for years and never really engaged his wife in the conversations. It turns out that she is not really at his speed, so she is finding it difficult to understand the complicated terminology he uses.
This is not uncommon. In fact, it is the rare occurrence when a family is actually well covered, truly all set, after the death of the primary person who was responsible for the selection and execution of the financial, legal and tax interactions.
All of this comes back to cash and the inherent need within all of us to feel financial security through the cushion of a cash reserve. The simple and immediate financial solution for this family is to create a cash account that will cover one year of living expenses. In cash. Liquid. Available. Accessible. No questions asked. Determine what the monthly need is to cover expenses, move this amount into the checking account, add a little more to create a buffer as unexpected expenses come up, and link the savings account that is holding the one-year reserve to the active checking account for ease of use.
The relief that washes over the faces of these clients is actually visible. The widow’s response is to question if she is allowed to do this. Will it harm her long-term financial condition -- code for … will I run out of money if I do this? The key is that within the context of a financial plan and the analysis that is the essence of this process, the affordability has been assessed and we can support this action with confidence.
Never, ever underestimate the need for cash. The ideas that play out over time -- to stay in the house or to sell; how to invest the remainder of the assets; what to do with our lives after a loss rocks our world -- all of these transitional times are made more clear with the backdrop of a cash reserve we can fall back on.
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Dorie Fain is the founder and CEO of &Wealth, a boutique financial advisory firm dedicated to women who are recreating their lives.
