Post-death Money Trail: A Financial Roadmap for the First Few Months

Do not rush into anything. Slow and steady steps will take you towards a more secure future.

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Even though we believe that we will not be able to live without a loved one, the physical body has a routine that will prevail. The running of the house too has a rhythm that will ask to be maintained. And in dealing with the demands of the body, the family, the work and the home gives us the external push to limp back to some sort of order. If the principal income earner has passed away, we will need a lot of work to get the financial life in order. Here are six steps towards a financial recovery. Small alert: this is not going to be an easy exercise and you will need to mentally prepare yourself for some hard work and decisions.

1. No hasty decisions. The months immediately after are the most emotionally charged ones and it is best to keep the cold money decisions away from the surge of emotions that well up. I have known people walk away from family assets in a fit of emotion. Others might want to relocate at once and make hasty real estate decisions. Yet others rush into investing the insurance money chased as they are by their banks. Do not allow your bank to suggest products from your insurance money proceeds. In the first six months after the passing of a spouse (I will use the word spouse here, but replace it with an appropriate relation depending on your situation), do not take any big financial decisions. Park them for a time when you have a better grip on the ground reality, when all the paperwork is done, when all the assets and liabilities are in place and when you know how much you need and what you have. Six months later you might be in a better place emotionally to take a more rational decision.

2. Cash flow audit. If the first step is to not do anything, the second one is to understand the rhythm of money in and out of the house. You need to understand the monthly, quarterly, annual inflows and outflows of money. For salaried people it is relatively easy to check the monthly credit into the bank, for business owners the mapping will be a bit more complicated. Next, itemise the regular monthly spends. You will need an excel sheet or a notebook to put down the regular recurring expenses each month. The bank and credit card statements will be a good starting point for this exercise. You can reach out for help with this here and here.

3. The spending audit. From the cash flow audit you have now got the main items of expenditure. From this we need to put down the must-do ones. EMI, rent, utilities, school fees, domestic help salaries, groceries, premiums into health, home and vehicle covers are spends that you will need to continue. Stop all investments that have no cost of a mid-way exit such as a mutual fund. You might even be able to pause some investment-oriented insurance policies if you speak with the company. Till you get an audit of the income you can draw from your assets, curtail discretionary spends as much as you can.

4. The asset audit. See this article to understand what the asset pile can look like and find what you own now and what is it worth. If there was a life insurance policy whose money will get paid to you, it is best to park it in a six month deposit before you decide on how it is to be invested. Include proceeds from the provident fund account, the gratuity if any, PPF, mutual funds, stocks. If there are more than one real estate assets, consider (but do not decide just yet) if you want to rent it or will be better off selling and investing the money for a regular income. Count the money in the other assets so that you can put a number down. The goal is to see how much the total pool of money is so that we can work on drawing rent, interest, dividend or profit from it. The income from your assets will have to replace the income of the deceased.

5. The liability audit. You might find that the asset you thought was yours actually belongs to the bank. This could be a house or a car. Add up all the loans value and check if there was an insurance against that loan. If there was, then the insurance will pay the remaining loan left leaving the asset in your possession. If not, you will have to decide if you have the money to keep paying the EMI – for example, if you plan to go to work to replace at least a part of the income, then you could keep the loan. But in most cases, it is best to be loan free and pre-pay loans if you can.

6. Big decisions. After the grunge work of figuring out your financial situation, now you can take important decisions about your future. Decisions such as relocating to a cheaper city, or with parents or siblings might be needed if there are few assets and debts are large. You might plan to go to work, or a young adult in the house could need to forego the higher education plans and get a job quickly. You may need to sell some assets such as jewellery, vehicles, additional real estate holdings so that there is money to put into income generating assets such as FDs, bonds and mutual funds. These decisions will depend on how much the total net worth number looks like and how you are able to deploy it to meet your costs over the rest of your life. These costs will only rise due to inflation, so ideally the asset pool must be so large that it can support an increasing spend over your lifetime.

Ideally use the services of a financial planner to rebuild your financial life. And you put down detailed notes for others to follow as you figure out your financial life, so that the cycle of unknowing does not repeat.

Next up. How to make the If-I-Die-Before-You file.

Baby steps to big money strides

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How would you react if you are told that you will go on a tight health plan that builds in one hour of tough physical exercise every day and cuts out most of the things you love to eat and drink? You may do it if you were facing a health crisis and this was the doctor’s order. You may begin doing it if motivated enough. But most people won’t stick to it unless, literally, their life depends on it. Managing money is very similar—you plan to do it, but sometime in the future and when they do begin, they begin with many large goals that mean fairly drastic changes in their current way of living. But this soon fizzles out, leaving them with not more money but a mild sense of guilt. Just the way it takes a health crisis like a heart attack or diabetes to shock a person into initiating and staying with a diet and physical activity plan, it takes a life crisis, like a job loss, the death of the main breadwinner or a large loss in business to get a family to begin and stay with financial fitness.

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