Whether you’re newlyweds, have been married for years, or are just about to welcome a new addition to the family, planning for your financial future is of the utmost importance. Financial planning for young families is not only vital in preparing for life’s many curveballs, but it’s also what will provide you peace of mind to enjoy all life’s little—and big—moments, without the burden of an uncontrolled financial situation.
Creating a Financial Plan for Your Family
Communicate with Your Family
Before you can take any other actionable step toward planning your family’s financial future, you’ll need to hold a family meeting to discuss your current financial situation and your personal and family goals. Involving kids, depending on their age, into these discussions can be a powerful motivator for you to work towards your financial goals, while teaching them healthy financial habits. Understanding your family’s goals will help you know what your targets will be.
- Are you hoping to start a family?
- Want to plan a big family trip?
- Looking to save for a new house?
Openly discuss your goals and dreams with one another, so you can work on creating a financial plan that will support you in achieving them.
Create a Family Budget
Once you’ve openly discussed your goals and financial situation, it’s time to crunch some numbers. Begin by identifying all of your outgoing expenses. OneFamily.com recommends you separate your expenses into two categories:
- compulsory expenditures
- non-compulsory expenditures
This way you can easily find an area or two where you’re excessively spending on things no longer need, like subscription services. Spend time finding places where you can cut back, especially if you have outstanding debts. Any money you free up is money you can invest back into your family.
Build an Emergency Fund
Creating a rainy-day fund is more crucial than you realize—especially if you have outstanding debts, as it breaks the habit of relying on credit cards for unexpected expenses. By building an emergency fund, you provide your family with a safety net for when and if the unfortunate, unexpected events occur, like losing a job, having to replace a car, becoming ill or injured, etc. Your emergency fund should be able to cover at least three to six months of your family’s expenses to ensure your family can afford the necessities, if something should happen.
Tackle the Debt
If you have any outstanding debts, like credit card debt or student loans, immediately begin tackling these, once you’ve established an emergency fund. By reducing the amount of debt you have, you free up money in your budget that you can allocate in a way that better benefits you, your family, and your financial future. It’s important to be aggressive in paying off your debts, so that you give yourself more opportunities to save and invest in your family.
Plan for the Future
It may seem like the future is so far away, but unfortunately, we cannot predict what tomorrow will be like, and, in the financial world, we strongly urge young families to immediately begin planning for the future.
There are two aspects that you will want to consider when planning: life insurance and estate planning.
- Life Insurance: No matter how healthy you are, enrolling in a life insurance plan is the best way to protect your family, especially if they heavily rely on your income to pay for necessary expenses. Paying for life insurance is an affordable way to safeguard your family, and, in most cases, a basic-term life insurance plan will suffice.
- Estate Planning: A key part in planning for the future is completing the proper estate planning documentation. Most often, this includes creating a clearly defined will, designating beneficiaries, and protecting your assets. A financial planning advisor can walk you through the crucial documents you should have in place to assure your family is protected.
Investing in Your Retirement
When debts are paid off and your affairs are in order, it’s important to begin investing in your family’s future. Putting money into a retirement plan (e.g. 401k, Roth 401k, 403b, etc.) is one way to ensure your family’s financial security for the future. As soon as you can begin contributing to your retirement, the harder your money will work for you, earning you interest as it sits in the account. In many cases, employers offer to match contributions up to a certain percentage; take advantage of any contribution matching your employer offers, as it is free money in your future pocket.
It’s important to make healthy contributions to your retirement before considering other investments, like college savings for your kids, as there are financial aid or student loan options that are available for higher education that aren’t available for retirement. You can always consider establishing a college savings account (e.g. 529 College Savings Plans) for your kids where you, friends and family can deposit money as birthday or holiday gifts that doesn’t initially take away from your retirement savings goals.
Find a Financial Planning Advisor Near You!
As a young family, you may feel like your finances are pulling you in so many different directions, and it can be difficult to know what areas you need to prioritize. Working with a financial planning advisor can help you ensure you are setting your family up for financial success and can alleviate some of the burdens of financial decision making.
At Focus Financial, we have an experienced team of financial planning advisors who can help you create an individualized comprehensive financial plan tailored to your family’s needs and goals. Your family’s financial health is our priority, and we are here to help you navigate these tough financial decisions. Contact us today to find a financial advisor and to learn how we can help you strengthen your family’s financial health, today and for your future.