Being both a financial planner and the owner of a company has given me the unique opportunity of seeing how running a household can be very similar to running a small business.
Both require rational decision-making, planning, and strategy in order to be successful. Just as a business owner needs to know what his resources are and if his targets can be met realistically, heads of households need to be aware of what their assets are and if their goals are feasible.
Recently, on The Goldstein on Gelt Show, I interviewed Nobel Prize winner Professor Gary Becker, who specializes in applying economic theories to everyday life, including the family. Professor Becker told me that families very often make very rational decisions when it comes to major life events, such as marriage, divorce, and children, as well on more economic issues.
“These are some of the most fundamental decisions that they make over their lifetime, and I think most people put a lot of thought into those decisions,” Professor Becker said.
However, he added that, “A company is a unit, but we know there’s conflict between stockholders and management, or managers and low-level employees, and so there’s conflict in the family, too.
In many companies, the management averts possible disagreements by holding meetings and discussions with employees to find out what their wants and needs are, and how to keep them working efficiently. Similarly, if there’s constant dialogue between husband and wife, conflict is more likely to be avoided, as the couple will make rational decisions together. Hopefully, those rational decisions, made jointly, will result in sound economic and fiscal outcomes. And if for whatever reason, the consequences of your family’s financial decisions don’t find favor in your eyes, consult a financial planner for an objective opinion.
To learn more about how economic theory can be applied to family life, download my interview with Professor Becker at www.GoldsteinOnGelt.com.
(The opinions expressed on the Goldstein on Gelt show are those of the guest, and not necessarily my opinion or the opinion of Portfolio Resources Groups, Inc.)
Douglas Goldstein, CFP®, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published August 4, 2014.