Come up with a plan to accomplish your goals with a family financial plan
Money and financial planning can feel overwhelming if your family’s finances haven’t been at the top of your priority list. But if you feel like you simply can’t keep up with how you’ve been spending your money so far, it’s probably time to start thinking about creating a financial plan.
A financial plan can help you and your spouse determine what financial obligations are most important to you and help you come up with a plan to work on your financial goals. Creating a financial plan for your family is a big undertaking, but this guide will help you determine what you need to consider to help you create a plan of action.
7 Considerations to Make When Creating a Financial Plan
Take the time to determine whether or not these considerations are needed in your financial plan
You and your spouse should always start your financial plan with clear, actionable goals. These should include goals you would like to accomplish in the near future (think within 5 years) and goals that will take you years to achieve. These goals might include paying off a car, saving for retirement, or whatever else might resonate with your family. With a clear idea of your goals and what your financial priorities are, you can work together to create a plan that works for you.
1. Your Budget
If you and your spouse don’t have a budget for your family yet, you need to start your financial plan by creating one. Budgets are the best way to understand how you have been spending your money and compare your spending habits to your financial goals. You can set up a budget in whatever way works best for you, whether that’s through a spreadsheet you update manually or a budgeting app.
If you already have a budget in place, the best place to start your financial planning is by revisiting and evaluating your budget to see what changes you need to make. If your spending hasn’t been aligned with your goals, make a plan to cut back on your spending so you can prioritize what’s most important to you in your financial plan.
2. Life Insurance
No one likes to think about what would happen if they or their spouse were to pass away, but when creating a financial plan, it is something you need to consider realistically. Life insurance can help provide some type of financial security to make sure the surviving partner can keep up with bills and the mortgage, afford childcare, and pay for any final arrangements.
Getting a life insurance policy is a lot easier than you might think. Whereas in the past, getting a life insurance policy has always meant you had to go through a medical exam followed by a painstakingly long underwriting process, you can now get a policy online in a much simpler process. Companies have started offering an accelerated term insurance policy with no required medical exam and can approve applicants for coverage within a few hours.
The accelerated term life insurance policy works the same way as a traditional term policy. The carrier approves the policyholder for a certain amount of coverage over a certain amount of time—typically between 10 and 30 years. If the policyholder were to pass away during that time and they are up to date on their premium payments, the beneficiary would receive the coverage amount as a payout.
The key difference is an accelerated underwriting process that typically eliminates the need for a medical exam. The application will require you to give detailed information about your health as well as your financial history and your lifestyle habits. Then, using predictive models to analyze your application, the company can quickly determine whether or not your application is approved while giving you a better idea of how much coverage you can get and how much your premium will be. Instead of getting a policy after weeks, you can get approved and start your coverage within just a few hours. Plus, these types of policies tend to be extremely affordable, though the price will vary depending on your situation.
3. Debt Repayment
Debt can feel overwhelming, especially if you have a lot of it. Almost all families have some type of debt, no matter if that is a student loan, credit card debt, or mortgage. No matter how much debt you have, your financial plan should include a plan of action on how you intend to repay your debts.
That plan of action starts with selecting a repayment strategy to follow. Some of the most popular strategies include:
- Avalanche – Make higher payments on your loans that have the highest interest rates. For all of your other debts, make at least the minimum payment amount.
- Snowball – Focus on paying off your smallest debts first while you still make at least the minimum payment on your other debts.
- Consolidation – Combine all of your debts into one place so you don’t have to worry about paying multiple accounts or choosing to pay one over the other. By consolidating your debts, you can often get a much lower interest rate.
4. Emergency Fund
Emergencies are unavoidable. Because of that, you should have an emergency fund in place in case an emergency were to ever put you and your family in financial hardship. Things like medical bills, the loss of a job, or home repairs can change your financial situation quickly. Instead of dipping into your personal savings or regular checking accounts to pay for these expenses, you will have the money available if you have an emergency fund.
To get started with your emergency fund, you should determine how much money you would like to save up. It’s generally recommended that you save between 3-6 months of your living expenses. When you come up with a plan of how much you would like to save and how long you need to save up the appropriate amount, then you should set up a separate account to hold your emergency fund.
If you keep your savings in with your regular account, it’s just tempting to take money out even if it’s not technically an emergency. You may also want to set up automatic transfers so that you are regularly contributing without even really thinking about it. As you save and after you’ve reached your goal, keep that money where it is! Unless, of course, you do need it for an emergency. But, you and your partner should talk beforehand to determine what you consider an emergency so you don’t withdraw money if you don’t actually need to do so.
5. Retirement Savings
With your financial goals in mind, you should start investing in your retirement as soon as possible to make sure you can retire comfortably. While how much you save will ultimately depend on your own lifestyle and goals, the methods of saving for retirement are fairly straightforward:
- 401(k) – Many employers offer a 401(k) retirement plan as part of their benefits package. Oftentimes, they will match a certain percentage or amount of your contribution. Especially if this is something available to you, you should start contributing to your 401(k) as soon as possible so you don’t miss out on any added perks.
- IRAs – If you don’t have a 401(k) option available to you, don’t fret! You can still make contributions to your retirement in an IRA. There are two types of IRA accounts, Roth and traditional, and both have their own advantages. Determine which works best for you and start contributing as soon as possible.
6. College Savings
If you and your spouse decide that you would like to help your children pay for college, it’s best to start saving as early as possible. Even if you aren’t able to save up enough money to pay for all of their college expenses, you still may be able to save enough to give them a good head start. After all, college is very expensive these days!
As you decide how you would like to approach saving for your children’s college education, you will want to think about what type of savings plan will work best for you. Depending on which route you choose, you may be able to get some tax advantages. One of the most common options people tend to use is a 529 college savings plan. This is a state-sponsored college savings plan that allows beneficiaries to take out tax-free withdrawals for college-related expenses.
As your children get closer to college age, you can sit down with them to talk about scholarships, grants, and loans so that both you and your children feel confident and comfortable in your plan to pay for college expenses.
7. Estate Plan
While creating your financial plan, it’s always a good idea to take the time to consider your estate plan and have a plan of action in place in case you or your spouse were to pass away. Together, you and your spouse should have the following estate planning documents in order:
- Last will and testament – Your will should detail what you would like done with your property and assets, who will take care of any minor children, and how you would like your funeral arrangements handled.
- Living will – A living will communicates your wishes for your healthcare if you are not able to make a decision for yourself, often regarding life-sustaining treatments like resuscitation or the use of feeding tubes.
- Power of attorney – If you were to be incapacitated or in any way unable to make decisions on your own, giving someone power of attorney means they can make decisions on your behalf. These decisions may be both medical and financial.
- Beneficiaries on all accounts – Make sure that you have a beneficiary listed on all of your retirement accounts.
If keeping up with your family’s finances has become increasingly more difficult recently, it’s likely time that you and your spouse get serious about your finances with a financial plan. By considering what’s most important to you and what you would like to accomplish, you will have a better idea of what you need to do in order to get your finances in order and start reaching your goals.