The 7 Steps Toward Building a System of Family Governance (Blog)

The rich get richer because the rich get help. And they have for centuries. Although we may not be ultra-wealthy, there are things that we can do to create a system for creating family harmony, preserving family history, and nurturing family values and wealth through the purposeful structure and stewardship of the founding family members. 

This month I have a guest blog post from Jason Howell, CFP®, author of Joy of Financial Planning: 7 Strategies for Transforming Your Finances and Reclaiming Your American Dream. Below  Jason shares the 7 distinct steps towards building a system of Family Governance for just a family and/or a family business.  We also talk about family governance in Episode 005 of my podcast, so be sure to tune in.

 

STEP 1: Tell Your Family Story

This is the George Kinder part of the process where getting to know who you are, what you believe and challenging those beliefs becomes a thing. It can only be done through discussion, thought and deep listening. Here are examples of some questions:

  • What did your parents/grandparents teach you about money?
  • What phrases did you overhear about money as a child?
  • How much value do you place on money in your life?
  • How hard has it been to save money over the years?
  • What was your most successful financial moment or the year?
  • If you could go back, what one financial change would you make from your past?

Depending on how old your children are, some or all of your discussion should be shared with them. This doesn’t need to happen all at once; most parents I know drop little stories about themselves over time. (Usually, it follows, “When I was your age…”) I am not qualified to judge how well those piecemeal revelations work, but as a fellow parent, I know I want to be more intentional. Begin with the end in mind when it comes to building your family governance system: tell your family story. If your children are old enough, have them start writing theirs.

 

STEP 2: Identify Your Current Habits/Lifestyle

Maybe you talk about money frequently, maybe you do not talk about money unless it’s an emergency. Identify what you and your significant other are doing now. Stepping back, without judgment, to talk about what you actually do when it comes to money is the next step in determining what you ought to be doing. Start with some of these questions:

  • Who earns money for the household and why?
  • Who makes the spending decisions and pays the bills for the household?
  • Who makes the long-term saving decisions in the household?
  • How do you handle financial disagreements? Are there “ground rules?”
  • If someone is earning an allowance, what does it represent?
  • How has charity or posterity influenced your financial decisions?

 

STEP 3: Reveal Your Aspirations

Most families don’t have financial goals, they just have goals. After you share some of your family story, write about your aspirations – short-term and long-term.  Feel free to write down aspirational goals that seem improbable. Use this step to observe how directly or indirectly your current money habits are supporting your aspirations.

  • What does financial freedom mean to you?
  • What would you do with your time if you didn’t have to work?
  • What do you want money to do for you and your family in 10 years?
  • Who is best suited to track the day-to-day finances vs. long-term planning?
  • What specifically do you wish to teach your family about money?
  • What do you wish your family understood about you and money?

 

STEP 4: Draft Values and Mission Statement or Motto

After writing your stories, what you have done, and where you intend to go as a family leader, forming your mission statement and family motto will come a lot easier. The values represent how you hope each member of the family treats each other and what you want your last name to mean in the community. You can get as detailed as you like here, but brief missions are more easily remembered (hence writing a “motto” instead is a viable option). Sometimes one word can mean so much. It’s why mottos stick, while mission statements just stick on a wall.

  • What words/phrases did you see repeating?
  • What values would you like your family to be known for?
  • What values would you like to pass along to your kids?
  • How will you commit to exemplifying your important values?

 

STEP 5: Drafting the family narratives

Having each member of the family patch together the family stories into narrative form is as much a thinking exercise as it is a writing exercise. This is where each spouse or child may start creating the “story” of their family that includes the past, present and future. This may take the longest amount of time because you and each family member are literally writing short essays to compare, contrast and consolidate. Here are the prompts for how you get started:

  1. Family STORY: “When I was younger…”
  2. Actual CURRENT financial lifestyle: “I see a lot of…”
  3. Personal ASPIRATIONS: “I would like money to…
  4. Ideal STANDARDS and family culture: “As a family we believe in…”
  5. Mission statement or MOTTO: “Our family mission is to…”

 

STEP 6: Create space for family meetings

As you may be able to tell, this is deep stuff. If your family is “doing it right,” each of the steps will take 30 minutes or more. If your nuclear family is just two of you, then you two can become the new Patriarchs and Matriarchs of the family and share your vision with others in the future. If you have children, how do you find time in an already busy schedule to reinforce values?  You create space.

  • During the daily commute (not every day)
  • During meals
  • When the kids are napping
  • Date Night (I know…)
  • Family trips/vacations
  • Family reunions (long term)

 

STEP 7: Draft a Family Constitution 

To draft the ultimate document that you and your family will follow and amend over time, will take some time. Traditional family governance structures define a “family council” that is in charge of the process but this is your family; a separate “council” is not necessary until you have multiple adult family members involved. You can be as formal or informal regarding the review of your Family Constitution  as you would like. Note that likely none of your neighbors are putting themselves through this crucible of creating a family governance system; but you were never really like your neighbors. Here’s how your family may outline the elements of your family constitution:

  • Outline the roles and responsibilities of each family member
  • Document how often the family will meet (decisions, goals, etc.)
  • Describe how financial decisions will be made and by whom
  • Outline how to resolve arguments and family “consequences”
  • Decide when  3rd party professional is used (i.e., advisers)
  • Create a reporting mechanism (style, frequency, distribution, etc.)

 

Want to know more about family governance?

Be sure to tune in to Episode 005 of my podcast, where Jason and I talk more about family governance and how you can implement it in your own family.

 

Have a Question?

Send me an email at Luis@onmywaytowealth.com and let’s get started on pursuing your financial goals together. To get bi-monthly financial tips for Gen Xers sign up for my newsletter and subscribe to the podcast.

Investment Advisor Representative of Retirement Wealth Advisors Inc. (RWA), 89 Ionia NW, Suite 600, Grand Rapids, MI 49503 (800) 903-2562. Investment Advisory Services are offered through RWA. Build a Better Financial Future and RWA are not affiliated.

This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal, medical, or tax advice. You are encouraged to consult your tax advisor, doctor, or attorney.