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Financial planning for families: The success formula

Financial planning
Family financial planning includes long-term planning in addition to day-to-day or month-to-month spending and saving

Financial planning for families is a must in the 21st century, as the move can ensure that your loved ones enjoy the activities and material comforts that are important to them, while having monetary security for life’s inevitable bumps. We all saw those dark days in the last two years, when Europe for example, saw families getting affected by the inflation and the resultant cost of living crisis.

While there is no guarantee that the situation mentioned above won’t come back again, this article will enlighten and prepare its readers on the family financial planning front, its essential elements, and simple measures that can bring everlasting mental comfort to you and your dear ones.

Understanding the concept

While households create a family budget, many fail to implement the plan, says Taylor Kovar, the CEO of Texas-based Kovar Wealth Management.

“This is where we want to go and this is how much we have right now,” Kovar said.

Following a financial plan gives families direction, freedom to pursue their interests, and access to opportunities that they might not have otherwise had, like beginning a family company or buying a property.

“We don’t say that the person with the most money or the one with the best financial sense gets to make those decisions. Working as a team, so everybody feels satisfied” is crucial. It is a little more complex than just money,” Kovar explained further.

Establishing both long-term and short-term financial objectives for the family might aid in defining the “why” behind your strategy. It could involve long-term goals like retirement, investing in a college degree, or buying a house. Alternatively, it could be short-term objectives like saving money for an emergency fund, clearing debt, or planning a family vacation.

Knowing the game

Taking general guidelines into consideration when creating your list of objectives can be helpful. The 50-30-20 rule is frequently recommended by Brandon Robinson, president and founder of Texas-based JBR Associates Financial Services, who cites the rule’s efficacy and simplicity.

According to this rule, you should set aside 50% of your salary for necessities and 30% for luxuries. The remaining 20% goes toward savings and investments, which promote long-term growth and financial stability.

You can experiment with alternative methods or a different percentage breakdown. Don’t be scared to attempt multiple approaches until you find the one that best suits your family.

A budget is an essential tool for your family’s financial plan since it makes it clear how your money is being spent, which helps you manage it better. It is said eloquently by financial advisor Kovar, “You can’t manage what you can’t measure.”

The need to watch spending has grown, as evidenced by a New York Life Wealth Watch poll that found an astounding 73% of parents struggle to keep up with expenses. The first step in creating a budget is adding up all of your income, including child support and other sources of income such as paychecks.

After that, every price is totalled, with variable costs like groceries and entertainment coming after fixed commitments like rent or a mortgage, auto payments, utilities, and tuition. Any money left over after deducting expenses from income should go into investments and savings to promote stability and growth in one’s finances.

Frequent monitoring of spending enables continuous evaluation and necessary adjustments, guaranteeing that financial goals are met.

Families can save money for many purposes at the same time, but if you don’t already have one, your main focus should be setting aside money for an emergency fund. You may prevent debt or even financial disaster by setting aside money for unforeseen costs like house repairs or medical emergencies.

If you’re just starting, open a different savings account and schedule a monthly or weekly automatic deposit. Selecting a high-yield savings account allows you to accrue interest in addition to your contributions. The ultimate objective is to accumulate enough funds to cover three to six months’ worth of costs in the event of a job loss, personal crisis, or other unforeseen disaster. You can start by transferring as little as $50 to $100 per month.

Having debt can hinder your ability to reach your financial objectives. Robinson claims that although some debt, such as a mortgage, may be required, many families wind up in debt as a result of overspending on wants and accruing large credit card debt. In other instances, having to use credit to cover unforeseen costs results from not having enough emergency cash.

For whatever reason, you should prioritise making those payments consistently for a while if you do have high-interest amounts. It could mean temporarily cutting back on some expenses or earning additional money. If you’re unsure of where to begin, you can look into other possibilities or consult with a credit counsellor for assistance.

The last thing you want is for unanticipated events to ruin the hard work you’ve put into adhering to a family financial plan. Products for insurance can help with it.

Term life insurance, health insurance, and vehicle insurance are the main kinds to have. In the latter case, your loved ones may benefit monetarily in the event of your untimely death if you have a term life policy worth multiple times your yearly income and you have dependents.

There are additional insurances, such as business, umbrella, and pet insurance, that could also be helpful to you.

Investing in the future

Family financial planning includes long-term planning in addition to day-to-day or month-to-month spending and saving. You can prevent yourself from ever having to support your children financially by setting up money for retirement.

You’ll have more growth potential the earlier you start investing. Additionally, you can achieve consistent growth while minimising your risk by keeping a diversified portfolio that includes a variety of investments.

Stocks, bonds, mutual funds, and retirement plans such as 401(k)s and individual retirement accounts (IRAs) are examples of long-term investing alternatives.

An investment in college can increase your children’s earning potential in the long run. The most recent data available, from 2021, showed that the median wages of individuals with a bachelor’s degree were 55% greater than those of individuals with only a high school diploma.

You can save and grow money tax-free using special accounts like 529 plans to assist lessen your children’s future student loan debt burden. Adding more money to a college savings plan can be a wise investment if you have a healthy emergency fund and are saving for your retirement.

According to Tyler Meyer, CFP, founder of, financial education ought to be a family affair. He suggests that everyone, whatever of age, contribute their financial expertise at a “Family Finance Night.”

“This not only fosters financial literacy but also establishes a welcoming atmosphere for candid financial discussions, strengthening sound financial practices,” Meyer stated further.

While shopping with your children, you may also look for instructional moments related to money and educate them to divide gift and allowance money into spend, save, and donate buckets.

A family financial plan ought to adapt as your priorities and funds do. It shouldn’t remain stagnant.

“Plan a monthly check-in with your partner and/or children, and then you can go deeper once or twice a year,” Kovar advises.

Additionally, you may decide to review your financial planning checklist, consider new options, and be guided by a financial counsellor or planner once a year.

Life post-retirement

A common goal for many families is to retire. A crucial component of family financial planning is evaluating clients’ retirement objectives and assisting them in creating a strategy to reach those objectives. If applicable, a successful retirement plan for a couple entails a thorough and well-coordinated strategy to guarantee that each person has the resources and financial techniques that work best for them.

As their financial advisor, you ought to urge your clients to fund their employer-sponsored retirement accounts (401(k)s and 403(b)s and to fully utilise any employer match that may be offered. When compared to other retirement savings vehicles, these plans may have higher contribution limits and offer tax advantages.

You should advise both spouses to open IRAs, either standard or Roth, based on their income, tax status, and eligibility, in addition to employer-sponsored plans.

Couples can diversify their retirement funds and enhance their long-term financial plan by utilising the extra tax advantages and investment flexibility that IRAs offer. You must motivate your clients to make regular contributions to their retirement accounts, especially in times of market volatility or uncertainty. Furthermore, it will emphasise the significance of routinely assessing and adjusting their investment portfolios to preserve the intended asset allocation and risk profile.

As your customers mature, talk to them about the best time to file for both spouses’ Social Security benefits, keeping in mind their ages, life expectancies, and possible survivor or spousal benefits.

Assist them in creating a retirement income plan that accounts for required minimum distributions (RMDs), tax consequences, and probable changes in their spending habits as they approach retirement.

Tax and legacy planning

Legacy planning is developing a plan for safeguarding a family’s wealth and transferring it to subsequent generations in addition to life insurance. This can involve tax planning techniques to reduce estate taxes, if applicable, as well as estate planning techniques including drafting a will or establishing a trust.

Give customers advice on the significance of establishing a power of attorney, will, and healthcare proxy. Talk about ways to minimise taxes and preserve money using gifting techniques, trusts, and charitable contributions.

To assist clients in creating a thorough legacy plan that is in line with their beliefs and long-term financial objectives, financial advisors want to collaborate with estate planning attorneys.

Due to many income streams, dependents, and possible credits or deductions, families can have more complicated tax circumstances than do individuals. Financial advisers should advise clients on ways to reduce their tax burden and assist them in understanding the tax ramifications of their financial decisions, working in tandem with certified tax professionals.

Achieving financial milestones and setting priorities is facilitated by creating financial goals that involve your entire family. Once you construct the family budget, tools, and technology can help you put a lot of your plan on autopilot, even if it can feel overwhelming at first.

Your family’s financial stability can be strengthened for both the present and the future after you manage debt, build an emergency fund and insurance policies, and begin to see growth in your savings and investment accounts.

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