Family Financial Planning: A Complete Guide

It’s easier for you and your loved ones to accomplish significant financial goals through thorough family financial planning. But the idea of creating a comprehensive roadmap for your money could feel intimidating enough to make you hit the brakes. Let’s go over the details of building a family financial plan to help you get your family’s finances in top shape.

What Is Family Financial Planning?

Financial planning involves creating a plan to achieve your specific financial goals. Everyone has a slightly different financial situation, with different incomes and goals, so it’s important to note that financial planning isn’t one-size-fits-all. That’s especially true when you add a family to the mix.

In general, family financial planning focuses on the scenarios a family is likely to face. These might include covering a child’s educational costs or building enough financial stability for one parent to stay at home.

Benefits Of A Family Financial Plan

A family financial plan can help you in many ways. Let’s take a closer look at some of the benefits:

• You can visualize what success looks like. When you know what you want to accomplish with your funds, it can be easier to stick with good financial habits. For example, instead of making an impulse purchase, it might be easier to set aside the funds for a dream vacation, a college fund or to install a pool in the backyard for the kids to enjoy.
• You can allocate your income appropriately. With a clear understanding of how you want to use your funds, you can use your income in the right places to achieve the goals you’ve set. Otherwise, it’s easy for your funds to get gobbled up by unplanned purchases instead of making their way into your savings or investment account.
• You can plan for big expenses. Most families run into big expenses along the way, like a new vehicle or college expenses. With a plan, you can make sure you are saving enough now for the future.
• You can get on the same page. If you have a spouse, building a financial plan together can help you both get on the same wavelength about money. With a shared plan, it’s often easier to make smart financial choices as a team.

How To Create A Family Financial Plan

A family financial plan can be a valuable tool. Let’s explore how to make a financial plan for a family below.

1. Envision Your Goals

A solid financial plan starts with your goals. Take some time to brainstorm life goals for you and your family, which are often closely tied to your financial goals.

Here are some goals you might have:

• Retirement planning: Most of us plan to leave the working world at some point. Retirement savings can make this a reality.
• Buying a home: You may want to include buying a home in your financial plan.
• College expenses: If you want to help your child pay for college later on, creating a savings plan can help you cover high costs when they reach the proper age.
• Taking a dream vacation: Saving up for a dream trip with your family can fit into a budget and build lasting memories.
• Estate planning: If you want to leave something behind for your family when you pass on, an estate plan can complement your financial roadmap.
• Paying off debt: High-interest debt can act like a drain on your financial future. Adding debt repayment to your financial plan could be a good fit and potentially free up money for the future.

As you consider these plans, take some time to determine how much each goal might cost. For example, you might need $5,000 for your dream trip but paying off a home purchase could cost hundreds of thousands of dollars.

It’s also helpful to keep your goals realistic and research them to see they’ll fit your budget. For example, saving up to install an in-ground pool into your backyard could actually be cheaper than buying a new home with a pool already installed.

2. Dive Into The Numbers

With your financial goals in mind, it’s time to take a closer look at the numbers. You’ll need to determine how much money you’re earning and how much money you can allocate for each goal, while still leaving room in your budget for current expenses.

If you don’t see enough room in your budget to cover all your goals, it might be time to cut back on current expenses. This might include trading in your car for a more affordable ride, which could free up money to set aside for retirement each month.

On the other side of the coin, you could focus on increasing your income. For example, a side hustle could bring in the funds you need to consistently save for the future. Since there’s no limit to how much you can earn, focusing your effort on earning more might be the right play.

Play with the numbers until you strike a comfortable balance between your current expenses and future financial goals. Don’t be afraid to find creative ways to spend less or earn more so that you can allocate more toward your goals.

3. Automate Your Savings

With a clear picture of where you want your funds to go, it’s time to start putting your plan into action. One of the best ways to do that is by automating your savings. For example, say you want to build an emergency fund. If you’re paid by direct deposit, you could have a predetermined amount of your paycheck sent directly to your savings account each pay period.

Automation is a helpful way to avoid the temptation of overspending. By arranging automatic transfers to your savings account, you establish a separation between your disposable income and your savings.

4. Build Your Investments

For more long-term goals, an option is to build your wealth through investing.

In general, the first place to start building investments is through a retirement account. You might be able to access a 401(k) or 403(b) through your employer, which might include a matching contribution. Another option is an individual retirement account (IRA), which also offers tax advantages.

If you have more funds to invest, a taxable brokerage account can help you grow an investment portfolio. Before you start investing, it’s a good idea to speak with a financial advisor to build an investment plan that’s right for you.

5. Evaluate Your Insurance

As you build a bright financial future, it’s helpful to consider your insurance coverage. If you own a house or vehicle, you might want to increase your liability coverage as you have more to protect.

Term life insurance may be another good option for families. If you or your spouse passes away prematurely, a life insurance policy can help your family stay on track without your income. It’s a good idea to consider term life insurance if you have any dependents who rely on your income.

6. Stay Flexible

Even if you build an outstanding financial plan, it’s important to stay flexible. Life has a habit of throwing unexpected things our way, which can change the trajectory of your financial plans. Don’t be afraid to adjust as needed.

Mistakes To Avoid With Family Financial Planning

As you craft a family financial plan, it’s important to avoid the following missteps:

• Skipping expert help: It’s never a bad idea to consult a vetted expert. The right financial advisor can help you work through the details of your plan.
• Working with an unqualified advisor: Not everyone is qualified to provide personal finance advice. It’s important to find an advisor you trust, and preferably one who is a certified financial planner (CFP).
• Being unrealistic: It’s important to stay realistic when mapping out a financial plan. An unrealistic plan can set you up for disappointment.
• Staying rigid: Be prepared to adjust your financial plan on an as-needed basis. It’s okay if the plan needs to change to reflect your changing money goals.
• Not following through: Creating a quality financial plan is an important first step, but you’ll need to follow through on your plan. Your financial goals can’t be achieved unless you save and invest to make progress according to your plan.

The Bottom Line

A well-crafted monetary plan has the potential to elevate your family's finances and carve a path toward your financial goals. Just know that it’s best to remain flexible and make necessary adjustments along the way.

If you want help managing your finances and setting a budget, sign up for the Rocket Money^SM app today.