Managing finances may feel daunting when considering your family’s needs and aspirations. However, there’s nothing more crucial than your household’s long-term economic stability. Planning your finances isn’t simply about saving for a rainy day—it also involves strategically securing your future and taking steps to achieve your shared goals.
Whether you’re a newlywed couple or the head of a big family, this article can help you understand how to manage your family assets wisely.
What’s Family Financial Planning?
Family financial planning is a comprehensive approach to managing your household cash and assets. It involves assessing your current finances and setting and achieving realistic goals while considering life’s inevitable twists and turns.
Let’s say you’re expecting a child. Securing your finances before bringing a baby into the world is crucial, but the decisions and responsibilities might be overwhelming. Financial planning means sitting down with your partner, reviewing your cash flow, and creating goals based on this information.
These objectives will help you set a budget to allocate your income wisely and save toward your goals. They also determine which investments can help your money grow so you can develop generational wealth. We’ll delve into the details later, but the bottom line is that financial planning can help you and your family reach your aspirations with minimal worries.
Also read: Everything You Need To Know About Financial Planning and Its Elements
Benefits of Financial Planning for Families
Financial planning lets your household enjoy the following benefits:
Building an emergency fund
Unforeseen expenses can happen anytime, whether it’s a medical emergency, home repairs, or sudden unemployment. With an emergency fund, you can weather these problems without taking out high-interest loans or using all your savings. You’ll have peace of mind knowing you have a safety net during challenging times.
Preparing for your kids’ education
Education is a significant expense for families—mainly because it lasts over a decade and sometimes includes extracurricular activities and other educational expenses. Financial planning lets you proactively save and invest in your children’s studies. In turn, they’ll have the resources to pursue their career aspirations without incurring a student loan debt.
Saving for retirement
Retirement may seem distant. However, starting early is essential to maximize your post-employment funds. Planning your family’s finances lets you prioritize saving for retirement, ensuring you can maintain your desired standard of living once you leave the workforce. It also makes you independent, so you won’t have to rely on your children to sustain your lifestyle during retirement.
Managing debts
Debt is often a significant source of stress and financial strain, but only if left unchecked. Family financial planning helps you strategically manage and eliminate liabilities, whether you’re dealing with credit card debt, student loans, or mortgages. In turn, you can regain control of your finances more quickly and clear resources for other financial goals and priorities.
Enabling investments
Investing is a critical component of wealth accumulation and financial security. Planning will help you identify suitable investments based on your risk tolerance, financial goals, and time horizon. It also provides the framework for diversifying your portfolio and staying disciplined during market fluctuations to maximize your potential for long-term growth.
How to Start Family Financial Planning: 5 Steps
Following and committing to these steps can set your family on the path to financial stability and success.
1. Determine your family’s goals
Why do you want to start planning your finances? New couples might focus more on achieving immediate wins, while experienced spouses or parents may aim for further ones. However, it’s crucial to consider short and long-term objectives when managing money.
Short-term goals include paying off debt, building an emergency fund, or saving for a vacation. On the other hand, long-term goals primarily focus on buying a home, funding your kids’ education, or planning for retirement.
Take the time to discuss and prioritize goals as a family, considering the values, aspirations, and lifestyle you want to achieve together. After all, your objectives might be different from your spouse’s or children’s. For instance, your spouse may want to start a new life in a different city. Your kids may also consider studying college in a well-established school.
Also, remember that goals evolve, so revisit and adjust them periodically to reflect changing priorities.
2. Build a budget
A budget is a blueprint for managing your income and expenses, so it’s naturally one of the first things you’ll do when planning your finances. Identify your family’s income sources, including salaries, wages, allowance, bonuses, and other revenue sources. Then, categorize your expenses into fixed and variable categories.
- Fixed expenses, like rent or insurance premiums, are mostly constant. We say “mostly” because they occasionally change, such as when your landlord raises rent or your insurance premiums increase.
- Variable expenses regularly change depending on your actions or choices. For instance, your grocery or dine-out costs adjust depending on how much food your family eats, while gasoline expenses vary depending on gas prices and how much you drive.
Be thorough when estimating expenses to minimize the likelihood of over or underbudgeting. Also, remember to readjust your budget according to your current circumstances.
Fortunately, you won’t have to start a budget from scratch. You may begin with the common 50/30/20 rule, which involves setting aside 50% of your monthly income for necessities, 30% for wants, and 20% for savings and debt repayment. You can adjust the proportions or add categories as needed.
3. Start an emergency fund
An emergency fund provides your family with a safety net against unforeseen expenses or income disruptions, so you won’t have to use your savings whenever you need extra cash. Allocate a small portion of your income toward your emergency fund, gradually increasing your contributions as your financial situation allows.
A common practice is to save three to six months’ worth of living expenses, but more is always better. Also, make your emergency fund accessible. Some people use a high-yield savings account to keep their money liquid, while others hold a portion as physical money for when they can’t access ATMs or their banking apps.
Establishing an emergency fund before saving or investing gives you peace of mind, knowing you’re ready to take on life’s curveballs as they occur.
4. Maximize your savings
Saving money provides the capital to build wealth, cover expenses, and weather unforeseen financial challenges. Maximize your savings by identifying areas where you can cut costs and reduce unnecessary spending.
Does your family eat out a lot? Recent data shows that Americans spend an average of $2,375 yearly on dine-ins and takeouts—that’s over $2,000 that could’ve gone to your savings or investments! You can also save more by brewing coffee at home, cutting unnecessary subscriptions, and going on fewer vacations.
However, maximizing savings doesn’t have to be miserable. You can renegotiate bills, shop for better deals on essential services, or eliminate non-essential purchases. You may also seek side hustles or freelance work to save more without sacrificing your lifestyle.
Another tactic is to automate contributions to your savings and investment accounts, so you won’t miss them. Don’t forget to leverage specialized instruments, like high-yield accounts and time deposits, to take advantage of their high-interest rates.
5. Invest for the future
While saving money is essential for short-term needs and emergencies, investing allows your money to grow and generate returns that substantially increase your net worth. Begin by learning about different investment options, the most popular of which are:
While focusing your money on one option might be tempting, this practice is inherently risky. Diversification is essential in investing; betting on two or more options reduces the risk of losing your money when one of them plummets. Likewise, utilizing tax-advantaged retirement accounts like 401(k)s and individual retirement accounts (IRAs) also maximizes your returns.
It’s also crucial to consider your risk tolerance, investment timeline, and financial goals. Understanding what works for your family will help you stay on track toward your financial goals.
What’s a Family Wealth Advisor (and Should You Hire One)?
A family wealth advisor is a financial professional who provides comprehensive wealth management services to families or households. Unlike traditional advisors who focus solely on individual budgeting and investments, family advisors develop strategies to help clients preserve their wealth across generations.
Should you hire a family wealth advisor? Ideally, yes. They can provide valuable expertise and support if your household has complex financial needs and substantial assets, and requires comprehensive financial guidance. However, hiring an advisor may not be necessary if your financial situation is relatively straightforward and you feel confident in managing your household finances.
Ultimately, the decision rests on your circumstances, so discuss with your partner whether hiring a wealth advisor suits your family.
Secure Your Family’s Finances for the Long-Term
Family financial planning empowers families to achieve their financial goals and secure their future—and it could do the same for you. Use the strategies above to confidently navigate household financial management. Moreover, commit to proactive planning and decision-making to pave the way for a brighter future for you and your loved ones.
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