How to Create a Family Financial Plan

Creating a financial plan for the family helps you manage your family’s finances more effectively and achieve your financial goals. Follow this step-by-step guide to start your family’s plan.

1. Understand Your Financial Situation

➪Gather Financial Documents

○ Collect bank statements from all checking and savings accounts.

○ Gather recent pay stubs from your job.

○ Obtain statements for any investments like stocks, bonds, or retirement accounts.

○ Gather statements for any loans or credit cards.

➪ Calculate Your Net Worth

• List Your Assets

○ Add up the balance of all savings accounts.

○ Include the current value of investments such as stocks, bonds, and retirement accounts.

○ Estimate the value of your property, including your home, any other real estate you own, high-value items like cars, expensive jewelry, designer purses, and other valuable possessions. 

• List Your Liabilities

○ Note the outstanding balance on your home loan.

○ Include any other loans, such as personal loans or car loans.

○ Sum up the balances on all credit cards.

• Calculate Your Net Worth

○ Subtract your total liabilities (what you owe) from your total assets (what you own).

➪ Review Income Sources and Expenses

• List Your Income & Sources

○ Include your primary job income.

○ Add any additional income sources like freelance work, rental income, or investment returns.

• List All Your Expenses

➪ Understand Your Cash Flow

•  Compare total monthly income to total monthly expenses.

•  Determine if you have a surplus (income greater than expenses) or a deficit (expenses exceed income).

2. Set Financial Goals

 You can adjust your goals depending on your extra income. Include any new goals into your budget.

➪ Identify Short-Term Goals To Achieve Within The Next Year

 Short-term goals might be Saving for a vacation, Saving for a new appliance, Paying off a small amount of debt, Saving toward an emergency fund, etc.

• Steps To Set And Achieve Your Goal

○ Define the specific goal

○ Calculate the total amount needed 

○ Break the amount into monthly savings targets

○ Track your progress

➪ Set Medium-Term Goals (1-5 Years)

Medium-term goals might include saving for a home down payment, saving for a car, saving for a child's education, building a larger emergency fund, etc.

• Steps To Set And Achieve Your Goals

○ Identify the goal and its estimated cost

○ Choose a timeline for achieving your goal

○ Calculate the amount needed to save each month or year

○ Set up a savings account or investment plan dedicated to your goal

○ Track your progress

➪ Consider Long-Term Goals (Beyond 5 Years)

Long-term goals can include paying off debt, saving for a home, saving for a college education, paying off student loans, paying off a mortgage, building a substantial investment portfolio, etc.

• Steps To Set And Achieve Your Goals

○ Identify your long-term goal and its estimated cost

○ Choose a timeline for achieving your goal

○ Calculate the amount needed to save each month or year

○ Create a savings and investment strategy and then set up a savings account or investment dedicated to your goal

○ Regularly assess your progress and make adjustments to your savings and investment strategy as needed. 

3. Create a Budget

➪ Track Spending

• Use a financial planner, tools, or apps to monitor daily, weekly, and monthly spending.

➪ Categorize Expenses

• Fixed Expenses are Expenses that are FIXED.  (Stay the same every time they're due.) These costs are predictable and easy to plan for. Such as 

○ Rent or Mortgage Payments

○ Car Payments

○ Subscriptions (Streaming Services, etc.)

○ Memberships (Fitness Memberships, etc.) 

○ Child Care

○ Any Other Recurring Bills

• Variable Expenses are expenses that VARY. (Change month-to-month.) These expenses are less predictable and more difficult to plan for. Such as

○ Groceries

○ Gas

○ Personal Care

○ Clothing

○ Entertainment

○ Dining Out

○ Property, Home, or Auto Maintenance

○ Medical Expenses

○ Utilities typically change each month and are usually considered a variable expense. However, if any are consistent or predictable, they could be a Fixed Expense.

○ Other Variable Expenses

➪ Set and Stick to Budget

• List all your fixed expenses and the amount for each.

• Allocate amounts for your variable expenses based on your income and financial goals.

• If your expenses exceed your income, you will need to make cuts in certain areas to balance your budget. 

• Avoid exceeding these amounts to prevent overspending.

4. Build an Emergency Fund

• Determine Amount Needed

• Aim to save enough to cover three to six months of living expenses.

• Open Separate Savings Account

• Keep the emergency fund in a separate account to ensure it is accessible for emergencies but not used for everyday expenses.

5. Manage Debt

➪ List All Debts

• Write down all debts, including mortgages, car loans, personal loans, and credit card balances.

• Note the interest rates and minimum payments for each debt.

➪ Create Repayment Plan

• Choose a strategy for paying off your debts.

• Consider paying off the smallest debts first to gain momentum.

• Alternatively, focus on paying off debts with the highest interest rates to save more money in interest payments over time.

➪ Explore Debt Consolidation

• Explore options for combining debts into one payment to simplify management and potentially lower interest rates.

• Determine if consolidating your debt will save you money or cost you more in the long run with your intended timeframe to pay off the debt.

• Don’t forget to account for the interest fees, balance transfer fees, and consolidation fees to determine the true cost of the option.

• Debt consolidation loans may include origination fees, interest fees, and balance transfer fees. Origination fees can range from 0.99–12%, balance transfer fees can be 3–5% of the amount consolidated, and interest rates on debt consolidation loans can range from 6–36%

Note: A credit card balance transfer could be a great option if you can secure a promotional 0% interest rate for an extended period of time. However, be aware that there are typically transfer fees to consider. 

6. Save and Invest for the Future

➪ Set Savings Goals

• Decide what you are saving for, such as retirement, education, or a major purchase.

• Determine how much to save and by when.

➪ Choose Investment Options

• Retirement Accounts

○ Use accounts like 401(k) or IRA for retirement savings with tax advantages.

• Education Savings Plans

○ Use plans like a 529 plan for education expenses with tax benefits.

• Stocks

○ Buy shares in companies for potential high returns with higher risk.

• Bonds

○ Lend money to companies or governments for regular interest payments and lower risk.

• Mutual Funds

○ Invest in diversified portfolios managed by professionals.

• Real Estate

○ Invest in property for rental income and potential appreciation.

Note: Diversify Investments and spread investments across different asset classes to reduce risk and improve returns.

7. Review Insurance Coverage

• Evaluate Current Policies

○ Review health, life, auto, and home insurance policies to ensure adequate coverage.

•Update Policies as Needed

○ Adjust coverage limits or add new policies as circumstances change.

8. Plan for Estate and Tax Considerations

• Draft a Will

○ A legal document that outlines how a person's assets and property will be distributed after their death

○ Names an individual (executor) to manage the estate and ensure the terms of the will are carried out

○ Can designate guardians for minor children

○ Typically requires probate, a court-supervised process to validate the will and distribute assets

○ Easier to change or revoke during the person's lifetime

○ Becomes a public document once it enters probate

• Set Up Trusts (if needed)

○  A legal arrangement where one party (trustee) holds and manages assets for the benefit of another (beneficiary)

○ Can provide ongoing management of assets, beneficial for minor children or individuals unable to manage their own finances

○ Trusts can be made revocable (can be altered) and irrevocable (cannot be changed) 

○ Assets in a trust usually bypass the probate process, allowing for quicker distribution

○ Trusts generally remain private, not becoming public records

○ May offer certain tax advantages, depending on the type of trust and assets involved

• Review Tax Laws

○ Stay informed about tax laws and consult a tax advisor for optimal planning.

9. Involve the Family

• Discuss Financial Goals

○ Talk with your family about financial goals and the steps to achieve them.

• Educate Children

○ Teach children about managing money, saving, and budgeting. Include them in financial discussions to develop good habits.

Read: Teaching Kids About Money

10. Monitor and Adjust Your Plan

• Regular Reviews

○ Review the financial plan annually or after major life changes.

• Update Plan as Needed

○ Make changes based on income, expenses, goals, or family circumstances to keep the plan relevant and effective.

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