How to Create a Financial Plan for Your Family

A family financial plan can help position your family for financial success, achieve your life goals, and minimize the sacrifices you need to make to achieve them. But creating a financial plan can be complicated, with so many factors to consider. Plus, you'll need to revise your plan over time as your family's needs and life circumstances change.

“Creating a family financial plan is a critical step in achieving your financial goals and ensuring your family's financial health,” says Jordan Mangaliman, CEO of Goldline Financial Services in Fullerton, California.

We'll show you how to create a family financial plan and what to look out for.

How to Create a Financial Plan for Your Family

Proper financial planning helps your family use income sources effectively and balance current needs with anticipating future needs. Planning can help your family achieve their short-term goals while also helping you achieve your own long-term goals.

1. Start with your family goals

Family financial planning starts with your goals, so you need to understand what your goals are.

• Do you want to retire early and only take on projects that appeal to you?
• Do you simply want to build assets for the future?
• Do you want to provide funds to provide a wealthy lifestyle for your spouse and children?
• Want to buy your dream home?

Whatever your goal is, you need to identify it before you can start working towards it. A financial plan is then built around your goal and the time period in which you want to achieve it.

Everyone's perception of financial success is a little different, which can affect the goals we set for ourselves. A recent Bankrate survey asked Americans to define what financial success looks like to them.

Most people place the most importance on comfort above all else at 56%, followed by being financially prepared for the future at 44%. Not worrying about money and living free of debt are tied at 41%.

Some define success as having enough money to quit their job, becoming a millionaire, or owning a business. No matter how you imagine that “I've finally made it” moment, you need a strong financial plan to make that vision a reality.

2. Create a budget to achieve your goals

The “core” of family financial planning is understanding your income sources and expenses. According to a recent Bankrate survey, 26 percent of Americans who consider themselves financially unsuccessful say they need to stick to a budget to reach their goals.

A good monthly budget helps you balance your short-term spending priorities and allows you to save some cash for the future. A budget is the foundation for making good financial decisions.

An effective budget helps you prioritize your spending so you don't get caught up in panicking upcoming expenses. A budget ensures that your wants don't exceed your needs and that you have money available when you need it. A budget also helps you avoid debt (at least unplanned debt), which can make it even harder to reach your financial goals.

A budget takes into account your regular income and expenses. This helps you prioritize which areas to focus on. You can track your expenses to see your typical spending patterns and where your money goes each month. You can then cut back on spending in certain areas to achieve your financial goals.

When new priorities emerge — saving for retirement, paying for your kids' education, buying a home — you need to adjust your budget to account for them or risk getting into high debt. Your budget is where you plan and financially align these competing priorities.

Here are some resources to help you create and organize your monthly budget: You can also try a zero-based budgeting model to ensure every penny has a purpose and is earmarked for savings, investments, and essentials.

3. Build an emergency fund

It's easy to overlook an emergency fund, especially if you're struggling to balance your income and expenses. But an emergency fund is a great way to protect yourself and keep you moving toward your long-term goals without having to take drastic measures.

“Having an emergency fund can help your family cover unexpected expenses like medical emergencies or car repairs,” Mangaliman says. “Try to have at least six months' worth of living expenses saved in an account that is liquid and easily accessible.”

An emergency fund should be a part of your budget, at least until you have the money saved up. This money is there to protect you and your family's financial goals and help ensure that short-term problems don't derail your long-term plans.

Now is a great time to open a high-yield savings account for your emergency fund.

4. Invest in the future

It's common for short-term expenses to get in the way of investing in the future, but you also want to ensure that you're financially prepared for the future.

• Retirement Accounts: It's easy to overlook these accounts, especially when you're younger, but don't overlook them. Time is your best friend when it comes to saving for retirement, so it's important to start small. Many employers offer retirement plans like 401(k)s or 403(b)s that offer a variety of tax-advantaged benefits, and many will match your contributions. Plus, anyone with earned income can take advantage of an IRA, which allows you to make tax-advantaged investments.
• 529 Account: If you have children or plan to have children in the future, you'll need to figure out how to pay for their college education, and a 529 plan can help. These plans allow you to make tax-advantaged investments to help pay for education costs or student loan payments.
• Taxable accounts: As well as specialist accounts, you can also put your money in general taxable accounts, such as brokerage accounts. The best brokerage accounts allow you to invest in assets with high potential returns, such as stocks and stock funds, and many also offer attractive returns on your cash.

Building investments for the future into your budget will ensure you have the money when you need it. Investing for the future can be one of the most difficult parts of the financial planning process, so now is a great time to hire a professional to help you create this part of your plan.

5. Protect yourself with insurance

Life insurance is another piece that can help your family continue moving toward their financial goals, even in the event of your death. Like an emergency fund, life insurance can help ensure you don't have to take extreme measures like taking on high amounts of debt.

“Life insurance is an important requirement if you have dependents, such as children or a spouse,” says Stuart Boxenbaum, CFP, president of Statewide Financial Group in Jupiter, Florida.

However, many families may fail when it comes to receiving adequate compensation.

“A simple rule of thumb is that the amount of the death benefit should be equal to the earner's total income multiplied for a minimum of five years and a maximum of 10 years,” Boxenbaum says. “If you earn $100,000 a year, the minimum death benefit is $500,000.” [or it] It could be up to $1 million.”

6. Revise your plan

It's common to make plans and then not follow through because life changes. And life changes. We achieve goals, children are born, others pass away. And those changes mean that you need to adjust your family's financial plan accordingly.

“When goals such as paying off debt are achieved on time or ahead of schedule, the cash flow can be repurposed towards the next financial goal,” Mangaliman says. “Also, when children leave home, parents may need to downsize and update their family financial plan.”

“However, unforeseen circumstances, such as a serious health issue or a reduction in salary, may delay the achievement of certain goals, and your family's financial plan will need to be updated accordingly,” he says.

“It's important to have annual or semi-annual reviews,” Boxenbaum said.

Even if the outcome of your periodic review is “no change,” your review will keep you thinking about your financial plan and how it needs to be adjusted over time.

Where Family Financial Planning Goes Wrong

Developing a financial plan for your family is not easy, with so many variables to consider. Here are some common stumbling points:

• Lack of flexibility: Your financial plan should have some flexibility built into it, especially when it comes to your budget. Make room for expenses that may be above normal, like winter heating bills or unexpected repairs. It never hurts to save too much, and it's better to save than to save too much and end up spending too much.
• Not reviewing the plan regularly: Regularly reviewing your plan ensures that you're working with the latest figures for both your income and expenses. It also allows you to adjust your budget to accommodate changes, such as the birth of a new child and their future educational expenses.
• Not calling in an expert when you need one: Proper financial planning is complicated. “The first step is to speak to a financial advisor who can work with families and individuals to help you with the math,” says Boxenbaum. “A professional advisor should deal with these cases frequently.”
• Maintaining high-cost debt: High debt can really put a strain on your lifestyle and worsen over time if not addressed. “Carrying credit card balances and other debt can feel normal, but it doesn't have to be,” says Mangaliman. “By intentionally paying off high-interest debt, you can accelerate your family's financial success.”
• Not reviewing your insurance: Your insurance needs may change over time as your life changes, so review your coverage to make sure you have what you need and aren't paying for coverage you don't need.
• Listen to unqualified advisors: Social media is full of people who are not qualified to offer advice, so be careful who you take advice from and understand best practices.

Creating a financial plan can be a daunting task, but you can hire a professional to help you.

“Financial planners can offer support and personalized guidance on how to most effectively achieve your family's financial goals,” Mangaliman says. “It's important to look for a financial professional who can help you with a customized, holistic strategy, rather than selling you a single product or service.”

Bankrate's financial advisor matching tool can help you identify advisors who can help you create a financial plan for your family.

Conclusion

Developing a financial plan is hard work, but it can help you and your family reach your financial goals. Just make sure you start with a family budget and work outward from there, calling in experts where necessary, to make smart decisions and stay on track.