Review: How to Be the Family CFO

Every other Sunday, The Simple Dollar reviews a personal finance book.

family cfoAs of late, I’ve been reading a lot of what one might call “business classics” – books that have stood the test of time at explaining fundamental principles of how modern businesses work. Books like Crossing the Chasm by Geoffrey A. Moore, The Innovator’s Dilemma by Clayton Christensen, and Barbarians at the Gate by Bryan Burrough, among many others.

Along the way, I came to realize that many of the fundamental principles behind these business books applied very well to personal finance as well. Optimizing your spending? Check. Seeking out new ideas? Check. Protecting yourself against the inevitable? Check. I began to quickly see the overlap – and the potential for some interesting writing in that area.

All of this brings us to Kim Snider’s How to Be the Family CFO, which claims to do exactly that. Snider basically encourages you to take charge of your family’s finances and treat them like the financial side of a business – and offers (as the subtitle says) four simple steps for doing it.

Is Snider’s advice worthwhile? Or does it merely retread much of the same material one can find in any old personal finance book? Let’s dig in and see what she has to say.

A Walk Through How to Be the Family CFO

Section One: Be the Family CFO
A family CFO has three roles: planning, managing assets and liabilities, and managing behavior. That may seem like heavy-handed talk, but if you think about it for a bit, it really fits with what most of us are doing (or trying to do) in our own lives.

We plan for the future whenever we think about our children’s college savings or our own retirement. We manage assets and liabilities whenever we earn a paycheck and pay the bills. We manage behavior whenever we strive to make good day-to-day choices with our spending (and our family’s spending).

Those three things, though (planning, managing assets and liabilities, and managing behavior), are the things that CFOs of large companies also do – they just do them in somewhat different contexts. That doesn’t mean that the lessons of a business school trained CFO can’t apply in our own lives.

Section Two: Plan Prudently
Snider’s big advice in terms of prudent personal finance planning is to simply begin making a personal finance statement on a regular basis. Make a list of all of your assets and all of your debts, find the balances for each, and figure out your net worth. Snider suggests doing this on a very set schedule – monthly or quarterly. I personally think this is a fantastic exercise for anyone to do.

As for budgeting, Snider seems to believe that a loose budget is useful, but the more detail you add and the more you tighten, the less useful it becomes. Why? The realities of our modern, hectic lives don’t really match well with firm budgeting. Instead, define your required bills and set some guidelines for other areas of your spending, but don’t budget down to the last nickel – give yourself at least a bit of wiggle room.

Section Three: Save Prodigiously
Snider argues that a six month emergency fund is a necessity for everyone and encourages families with children to have even more than that. For anyone familiar with Dave Ramsey’s work, this may be a surprisingly large number, since he advocates for a $1,000 emergency fund – for virtually everyone, Snider’s suggestion is far, far more money.

Another interesting suggestion from Snider: she encourages people to focus on retirement savings first and not worry about college savings until retirement savings are well taken care of. Why? You can borrow money to go to college, but you can’t borrow money to retire. This simple fact means that you need to make sure your retirement is covered first, then help out your children.

Section Four: Invest Wisely
Snider’s advice on how to actually invest one’s money is solid and straightforward. Figure out your goals before you do anything, but figure them out early so that you can begin investing early. Create passive income where you can (meaning create things that can continue to earn money for you even if you were to walk away from them). Focus on long term results. Know your risk tolerance – if you can’t tolerate a 20% drop in a year, you shouldn’t be heavily invested in stocks. Don’t let tax implications dictate your investments – just use them as a factor. Don’t ignore inflation.

My favorite piece of advice, though, was her detailed discussion of figuring out what you can control and ignoring the rest. There are simply some things in life you can’t control – the stock market is going to have ups and downs regardless of what you do or how much you worry about it. Instead of worrying about these things, focus on what you can control. Knowing that the stock market ups and downs are inevitable, what can you do to protect your money in a way that makes you feel secure?

Section Five: Manage Risk
Snider argues that the greatest risk we face in our day to day lives is our own personal health – and our related ability to continue to earn an income. As long as we can work productively and earn an income, we can ride through most of life’s storms.

Thus, the best way to manage risk in our own lives is to protect against those risks with things like long-term care insurance, long-term disability insurance, and life insurance. These protect our family against the risk of having something happen to our health and thus should be the highest priority in terms of managing risk in our financial lives.

She does go on to cover other areas of risk – liability, identity theft, and other areas – but her focus on our continued health as the biggest risk was serious food for thought, at least for me.

Is How to Be the Family CFO Worth Reading?
First off, most of the material in this book is stuff that you can find in most other general purpose personal finance books. Snider doesn’t really tread new ground here – if you want explicitly new information, you probably won’t find it in this book unless you’ve not read many personal finance books.

Having said that, em>How to Be the Family CFO is an excellent book because of the perspective Snider brings to the table. Snider takes the view that one should analyze the ins and outs of their life as though they’re a business. Cover your risks. Focus on the areas you actually can control. Budget reasonably, but not too tightly. Make clear reports of your finances so you know what’s going on with your money. This is an excellent and well-reasoned approach to personal finance management.

em>How to Be the Family CFO comes highly recommended from me, particularly if you have a sense that you need to take a harder and more realistic edge with your family’s personal finance management. It made me start to carefully consider my choices in terms of managing my family’s money.

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  1. Duffbert says:

    Just a side note… Dave Ramsey advocates a $1000 emergency fund *as a start*. That takes away the “I have to use a credit card for my “X” emergency”. Once you get things more under control, you should be shooting for the 4 to 6 month emergency fund.

    Nice book review…

  2. Dean says:

    Sorry for the first post to be negative but you have some broken markup, the ‘em’ tags in the final two paragraphs.

  3. Wise Finish says:

    One thing I would add to her book (perhaps she mentions this, but I didn’t get it from the review) is that it is good to have both spouses assume the CFO role at times so that both can understand what is going on with the finances and see where the budget is being exceeded…

  4. Susan says:

    Section 3 on the emergency fund you state that Dave Ramsey advocates a $1000 emergency fund. That is correct as Baby Step One in his Financial Peace University program (which I just finished going through). He ALSO says after debts are paid off with the snowball effect(baby step 2), to build an emergency fund of 3-6 months and even up to 1 year of expenses (baby step 3) which is what this book, Mary Hunt, yourself and many others advocate. Just wanted to clarify what Ramsey teaches.

  5. Thanks for the review, Trent. I’ve been on the fence about getting this book and your review has convinced me to go ahead and read it. It’s clear that this book may not be the “end-all” guide, but it sounds like it has enough information to help me become more focused in dealing with my family’s finances. I really appreciate how thorough you are with book reviews.

  6. Amy says:

    Thanks for the suggestion. I’m a mother of three young kids, with a husband who has a solid grip on our finances in general, but has a very demanding job that leaves him little time to get the “big picture” of how all the pieces fit together. This task has fallen to me by default, and this book sounds like it was written for someone like me.

  7. richerandslimmer.com says:

    Just wondering, do you actually buy all the books that you review? One of my biggest expenses used to be books (because I love reading), but I have started checking out books from the local library more and have saved a bunch.

  8. sayjack says:

    “Another interesting suggestion from Snider: she encourages people to focus on retirement savings first and not worry about college savings until retirement savings are well taken care of. Why? You can borrow money to go to college, but you can’t borrow money to retire.” This is good advice that most people will not accept. Most parents feel it’s their duty to put their kids through college. I remember when I first heard Suzi Orman give this advice some years ago and I thought to myself how self-centered one must be to put themselves before their kids education. But as with most things in personal finance, an emotional response can land you in a weak financial position. Consider this: if you put your kids college education before your retirement and fall short in your savings, then who will be left to bare the burden? Your kids in most cases. Do your kids a favor and make sure they are not going to have to spend their retirement saving on taking care of you in your “golden years.”

  9. I think taking a CFO perspective also helps take some of the emotion out of managing household money. It’s not “you have to stop spending there” or “I always feel poor” but “This is our financial future, and what choices do we want to make so that we can plan a future that takes our family ship where we want to sail?” That mindset allows for making plans to save a little to remodel the kitchen … or take a vacation … or budgeting to eat out … or whatever floats your boat.

    In terms of emergency fund, we started with $1,000. We are gradually building a bigger fund, but in the meantime, we save in separate ING Direct accounts for planned eventualities (Christmas, summer child care, etc.). Once our fund passed $2,000, we felt much more comfortable, because we could pay for a large car repair and STILL have $1,000 just in case.

  10. Curtis says:

    Trent, I’d like to see some more analysis of this idea that one should save for retirement before saving for kids’ college. The larger question is: At what point has one saved enough for retirement that one can start saving for kids’ college expenses? You can’t wait until you retire, obviously, since your kids will be in college at that point (under most circumstances).

    Take my situation: I’m 31, married, no kids, not sure when we’re going to have them but probably in the next five years. We put 20% of our income toward retirement and are putting aside some money for a college fund, which at this point is just in normal mutual funds and CDs, not in an special education account. Before I read your review I thought that 20% of income to retirement savings was pretty solid, now I’m wondering if I should be doing more for retirement and not think about the kids until they’re born.

  11. sharon says:

    Trent, I enjoy your newsletter as well as the comments. Very informative.
    I do have a question; we have only a mortgage (1st with 2nd under $100K – live in an expensive part of the world) and I want to pay the small note off quickly so we have more cash and then put the extra to my 401K. Is it better to do this or increase 401K contribution currently? We both work, have 401Ks have a few months expenses saved and no kids.

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