MarketWatch article by Aaron Katsman
I met earlier this week with a lady who had lost her husband about a year ago. She explained that she was never really involved in the family finances, and after her husband passed away, she was overwhelmed.
She said that she didn’t know what to do first and decided to go online and read some personal-finance articles that really helped get her on track. At the end of our meeting, I complimented her as to how she is in total control of her financial situation and made some smart financial moves.
As an aside, lest you think this is going to be a condescending article about widows and their inability to handle money, it’s not. Though un-scientific, from my experience, women tend to deal with spousal loss better than men.
Unfortunately, I have had my share of meetings with both widows and widowers who have not managed to take control of their financial situation. Here are some money pitfalls to avoid if you lose your spouse.
Long-lost cousin Fred
Not long after the mourning period, and before the insurance check arrives, the surviving spouse becomes very popular among relatives with business ideas. Much like Mark Cuban on the hit show “Shark Tank,” the widow is hit up for money for the “next hottest business.” Often they have the best of intentions only to fall prey to those who don’t.
Then there are the financial bad apples that prey on those recently widowed. There is a natural inclination among surviving spouses to invest in secure investments offering regular income that never runs out. There are all kinds of products being pitched to supposedly help accomplish this goal. Sadly, these products tend to enrich the salesperson at your expense. As Ken Fisher CEO of Fisher Investments said regarding buying an annuity, “You might as well just give the salesperson money to put their kid through private school.”
Upon receipt of a large sum of money from an insurance policy, do nothing with the money for three to four months. Just stick it in the bank. Don’t make any rash or impulsive purchases or investments until you feel like you are in control and making rational decisions. I have seen many instances where a surviving spouse receives a large death benefit and squanders it immediately, by buying all those things that “needed” to be bought or by giving overly large gifts to children to help them out. Nothing against helping children, but make sure you have enough for yourself first.
Before making investment or gifting decisions, it’s important to figure out how much money is needed on a monthly basis. Wait a few months to try to determine how much money is required. The reason to wait a while is that you may have all kinds of immediate expenses that will skew your budget, and give you an inflated figure of what you need. After things calm down, start to track expenses. Break your expenses down to those that are monthly and those that are annual, one-time expenses. Once you have that organized, write down all of your various sources of income, salary, social security, pensions, rental income…etc. This means that once you know how much money enters your bank account each month, create a budget that limits your spending to the amount of income you have.
After defining cash-flow needs, investment allocation decisions can be made. If income is less than expenses, the money can be invested to generate income to supplement the monthly shortfall. Conversely, if expenses are lower than current income, more growth can be allocated to the portfolio.
The death of a spouse is emotionally devastating, but you need to continue living your life. By avoiding certain traps and implementing these tips, you can start taking control of your financial situation, which to some degree will help enable the healing to begin.
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The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.