DAVID KOCH: The most common financial heartaches and how to avoid them

They say money can’t buy happiness. But lack of it can lead to ruin and an enormous amount of heartache.

Over the years I’ve come across so many heart-wrenching stories of financial misery which you wouldn’t wish on any human being.

Unfortunately, many of these sorry tales are more common than you’d think. Fortunately, most of them can be avoided by discipline, common sense and thinking with your head rather than your heart.

Heartache 1: Husband leaves his wife who has no idea about family finances

My experience is men can be extraordinarily domineering and protective about managing the family finances. At its extreme, it can be financial bullying, while at the other end of the scale, it can be a misguided sense of loyalty.

Either way, keeping a partner ignorant of the family finances is positively dangerous.

If a husband dies suddenly, or walks out on the relationship, the wife is extraordinarily vulnerable. I’ve had cases where surviving wives have been abandoned with no knowledge of bank details, investments, wills or insurance documents.

Solution: If you’re in a situation where you’re excluded from the family finances, demand your partner share all financial information and explain where important documents are kept.

A common response is: “Don’t you trust me?” It’s not a matter of trust, it’s a matter of love and safety if they get hit by the proverbial bus.

If your partner still refuses to share information you should seriously question the whole relationship.

Heartache 2: Lending money, or going guarantor, for an adult child

Sure, we all want to be a good parent and supportive of adult children in their new venture or buying a house. But that doesn’t mean putting your entire financial future and retirement at risk.

I know so many people who’ve lent money, or went guarantor, for an adult child and have lost their entire retirement savings.

If a bank won’t lend them money for a business venture or a house, why should you? The bank doesn’t think it’s a good idea and they’re the experts.

Solution: Don’t lend to family or friends. Simple.

But if you do, make sure it is on a proper business footing. Get them to sign a loan agreement, which clearly sets out the terms and the repayment schedule, just like a bank does. Even take security over an asset as extra safety.

If you’re going guarantor, make sure the guarantee is limited and not open-ended, so any damage is restricted.

Heartache 3: Person risks everything, and loses, without telling their partner

A partner gets caught up with the high-flyers at the golf club, gets sucked into a dodgy investment that the cohort is boasting about, borrows to keep up, the investment tanks and loses everything.

It’s an awful scenario. I know of a couple where the wife only found out about the deal when the bank foreclosed on their house.

Solution: Successful relationships are based on transparency, honesty and teamwork. That also goes for money issues.

Set rules where no investment decision above a certain amount can be made without the agreement of both people. All loan documents must be fully explained before signing.

I reckon that if every couple spent just 15 minutes a month talking together about their money then a lot of the problems would be solved. Talk about your financial values and goals while setting a long term plan.

Heartache 4: Estate planning which splits the family

For a lot of senior Australians, the mystery of their estate is used as a way to influence and tempt their adult children. The prospect of a will windfall can be a powerful tool to buy attention and kindness.

But because of the mystery and expectation, the eventual unveiling of the contents of a will can trigger disappointment, crazy conditions, unexpected tax bills and split a once happy group of siblings.

I know one family where the will left the entire estate to the oldest adult son with the condition he “look after his siblings” who were all married. What does that mean? Unravelling the estate became a costly legal nightmare.

Solution: For the good of ongoing family harmony, a will shouldn’t be secret. Parents and their kids should be completely open about the contents, particularly if there are business assets and extensive investments involved.

Heartache 5: Running out of money in retirement

You’ve worked hard, stashed money away for retirement and are confident that your lifestyle will be comfortable. But then a global financial crisis or pandemic appears, investment markets crash and the value of the nest egg drops significantly.

Retirement is in tatters. You’re faced with the prospect of slashing your lifestyle or going back to work.

Solution: Good professional financial advice. The advice should be sought while building that retirement nest egg, once you retire and during retirement.

Talk to a qualified financial planner, accountant or stockbroker. Start with the planners at your superannuation fund.

Heartache 6: Under-insured

So many of the heart-wrenching stories centre around a financial catastrophe for which there has been no insurance as a safety net. They say insurance premiums are expensive, except when you have to claim.

An uninsured house is destroyed by fire, long term illness without income protection cover, death of a breadwinner without life insurance. The financial consequences can cripple a family for life.

Solution: Assess your financial obligations and the value of your assets and life. Then shop around to find the best cover which suits your circumstances. Talk to an insurance broker or check comparison websites for the best deal. to find the most cost-effective cover.