Ultimate Guide to Family Financial Planning for a Prosperous Tomorrow
According to the Federal Reserve, about four in ten American adults were "doing okay" financially around the end of 2023. About one in three said they were "living comfortably." The rest, however, were either only "getting by" (19%) or having a hard time getting by (9%).
Proper and effective family financial planning can help put you in the group that's "living comfortably." It's better to be in this group to live with fewer financial worries, enjoy life to the fullest, and provide for your family.
To that end, our team at Phillip James Financial in Plymouth, Minnesota, put together this family financial planning guide. So please read on, as what you discover here can help you prepare for your family's tomorrow as early as today.
Create a List of Family Financial Planning Goals
Each family has varying financial goals, and yours is likely no exception. A financial plan that works for one household may not be as applicable or suitable to yours. For this reason, sitting down with your family (including kids) to discuss short and long-term goals is one of the most crucial steps in effective family financial planning.
Some examples of short-term goals that can also help your family achieve the long-term ones are:
Setting aside money monthly for an emergency fund
Paying off credit card debts
Saving up for a home purchase down payment
Staying within the monthly budget to avoid running into financial issues
As for long-term goals, here are some examples:
Saving for education
Retirement planning
Paying off a mortgage loan
When creating your list, consider including a schedule or timeline. A schedule can help encourage each family member to do their part by giving everyone a "sense of urgency." When your family achieves these goals on time, it fosters a sense of accomplishment that can further motivate everyone to reach all other financial targets.
Develop a Family Budget
Budgeting for families can help strengthen finances and improve debt management. Indeed, according to Debt.com, 73% of people said that budgeting helped them stay or get out of debt in 2018, which has since risen to 89% in 2024.
So, no matter what life stage your family is in now, whether you're just starting one, your children are already about to become teens, or you're expecting your first grandchild, a budget is a necessary tool for your loved ones' futures. By creating a family budget, you'll be able to:
Know how much money comes in (account for all sources of income)
Determine where the money goes (all household expenses)
Discover areas of expenditures you can cut back on (e.g., discretionary expenses, AKA "non-essentials")
Put more toward savings and investments
With those steps, you can become part of the one-third of Americans who, according to NPR, say that even rising inflation had little impact on their family finances.
Have an Emergency Fund
One of the most crucial financial security tips is to have an emergency fund, a cash reserve for financial emergencies or unplanned expenses. Common examples of such expenditures are:
Medical bills not covered by insurance
A sudden loss of income
Unplanned home or car repairs
Without an emergency fund, a financial shock can set you back, and if you have to rely on credit, the debt you accrue can have a long-lasting impact. Preventing such disasters is one of the primary reasons and benefits of early financial planning.
How much to set aside for your emergency fund depends on many factors, including:
The size of your household and how many dependents you have
Your lifestyle
Your household income
Monthly expenses
A fiduciary can help you determine the ideal emergency fund for your specific situation. To give you an idea, though, the typical advice, per CNBC, is to set aside an amount equivalent to three to six months' worth of your family's living expenses.
Educate Children About Financial Literacy
Part of your family's financial planning should involve teaching your children about financial literacy early on. Doing so can help them develop healthy financial habits that they can take with them and apply to adulthood.
Some examples of what you can teach your kids are:
Saving
Earning
Investing for children
Responsible spending and borrowing
So, when can you start educating your little ones about financial planning and literacy? According to Parents.com, research shows children form monetary habits and patterns by the age of seven or in second grade.
Invest in Your Children's Education
One of the best things you can do for your children is to help them get a college education. However, considering it's a considerable investment, you'd want to include it in your family's financial planning early on.
A college education can help improve your kids' earning power over their lifetime. According to the National Center for Education Statistics (NCES), people with higher educational attainments have higher median earnings. For instance, in 2022, those with a bachelor's degree had a median earning 59% higher than those whose highest educational attainment was high school.
To help your kids pay for college, you may want to consider investing in special savings accounts. A fiduciary can, once again, help you decide which investment platforms are best for this purpose.
Prepare for the Future Early On
The earlier you start with family financial planning, the sooner you can prepare for a more prosperous tomorrow.
For example, retirement planning is something you can begin with as early as your 20s. Many retirement savings accounts don't have minimum age requirements, and the sooner you start putting money into these accounts, the earlier they'll build interest. By the time you retire, they'd have accumulated significant interest.
The same goes for investing; the earlier you start, the greater your growth potential. Starting early also allows you to build a diversified portfolio, which can help lower your risks while letting you enjoy steady growth.
Never Go Without Insurance
When you're doing everything you can to achieve your family's financial planning goals, the last thing you want is for unplanned events to unravel what you've worked hard to stitch together. For this reason, you should never go without the most crucial types of insurance policies, including:
Health insurance
Life insurance
Homeowner's insurance coverage
Auto insurance
If you have pets, consider purchasing pet insurance for them, too. With this policy, you can minimize the costs of veterinarian bills and medical expenses in case your furry family member gets sick.
A fiduciary can help you determine which policies your family needs and how much insurance you should get based on your family's circumstances.
Make Debt Management a Family Thing
Not all types of debt are harmful; some, like mortgages, are beneficial, even necessary. However, some debts can be "bad" if one overuses them or if they build up due to overspending on wants and discretionary expenses. In other cases, bad debt is due to a lack of proper family financial planning, such as not having emergency funds to rely on in case of unexpected expenses.
You can turn things around even with debts by prioritizing their prompt repayment. However, your entire family should do their best to make debt management less burdensome. At the very least, they must understand why you may have to trim some discretionary expenses.
You can also use this as a learning opportunity for your children about resource conservation. For example, you can teach them how turning off the lights when not in use or not letting the faucet keep running when brushing their teeth can help save money and the environment.
Consider Working With a Fee-Only Fiduciary
When you enter the financial world, you'll often hear and encounter the terms fiduciaries and financial advisors. Both are financial professionals who provide clients with sound financial advice.
One primary difference is that a fiduciary must, by law, act only in the best interest of their clients. They must also manage their clients' finances and property carefully.
Another critical difference is how a fiduciary and a financial advisor get paid. Fiduciaries typically offer a fee-only compensation structure in which they only charge a flat or hourly fee for their services. You can rest assured that they're transparent with their pricing and won't surprise you with hidden charges.
On the other hand, many financial advisors charge a commission. They usually get this commission by selling financial products their employers sell to clients. Because of this, there's a concern that the advisor may sell or recommend something because it can benefit them more than their clients' finances.
So, if you want more reassurance when getting advice for your family's financial planning goals, consider working with a fee-only fiduciary.
Ready to Plan for Your Family's Future?
Now that you've learned the basics and essentials of family financial planning, the next step is to consider seeking professional guidance for aspects you're not 100% sure of.
At Phillip James Financial in Plymouth, Minnesota, you can count on our many years of high-level experience in financial planning and wealth management. As fee-only fiduciaries, we'll always have your best interest in mind and never sell you a product or tie you into a long-term commitment. You can also count on us to charge you with reasonable fees of as low as 0.50%.
Contact us today, and we'll be happy to discuss how to make your family's future brighter and more prosperous.