Life is full of milestones – graduating from high school, passing out from college, getting a job, finding your partner, having children, retiring and growing old, and everything that happens in between. All of these stages can bring significant changes to your life. They can also involve different preparations. However, the one thing that remains common is money. No matter what you do, being financially prepared is an essential factor. If you have enough money, you can go to college, live in a good house, enjoy life with your spouse, cater to your children’s needs, and of course, retire comfortably.
Personal and family financial planning can help you tackle every life stage with the proper vigor and zeal. It can ensure that you are well-prepared to handle anything life throws at you and anything you wish to achieve for yourself and your loved ones. It can provide you with structure and a road map. It also helps you break your finances into little goals, making it easier to reach your targets step by step.
However, it can be a bit tricky to plan for the various stages of life. Things can change, and unexpected circumstances can throw you off when you are least prepared. Therefore, it becomes important to know how to make a financial plan for the family. You can also reach out to a professional financial advisor who can create customized financial planning suited to your needs.
Here is a step by step guide that can help you plan financially for your family:
1. Marriage:
Marriage is not just a union of two souls but also an amalgamation of two people’s finances. When you get married, you share a home. You split your bills. You may get a joint bank account or a couple’s insurance policy. Further, your credit scores may be linked when you apply for a loan. Therefore, it becomes important to get to know your partner and their financial situation. If your spouse carries a lot of debt, your financial situation may be impacted. The same can be the case if you have debt and your spouse does not. Additionally, the attitude of two people can differ towards their finances. If one person is a spendthrift and the other a saver, you can aim to strike a balance. It can also be easier if your goals and your partner’s goals align. This way, you can plan your goals together. This takes off the burden from one person’s shoulders. Moreover, two people contributing to the same goal ensures that you reach the target sooner.
Another thing to consider when getting married is the health condition of your spouse. If one spouse suffers from an ailment, it may impact their ability to work and earn. Being prepared can help you plan better. Family financial planning ideally starts from marriage, and being honest about your wants and needs can bring a certain level of transparency into the relationship. This helps set things in motion.
If your spouse has been married before and has children, they may have other financial responsibilities too. If this is the case, you can have separate financial plans that let you focus on your unique objectives. Whatever you choose, make sure that you discuss it at length with your partner before you are legally married.
2. Having a child:
Starting a family is a significant step in anyone’s life. As rewarding as it can be to become a parent, it can also be overwhelming. The day you know you are going to be a parent is the day you can start personal and family financial planning for your future. A child will have expenses like education, healthcare, essential and non-essential spending, and more. It is vital to plan for all of these. A lot of parents use a 529 education savings plan to save for higher education expenses. This can help you cover the costs of college.
Moreover, it enables you to save a large corpus slowly without feeling burdened all at once. In addition, 529 accounts accept parental contributions as well as third-party contributions from grandparents and other relatives. So, you can get the child’s uncles and aunts and even your friends to contribute on special occasions, such as birthdays. This can be a great way to make sure that your child has the right financial support. You can also use an Individual Retirement Account (IRA) to cover your child’s higher education expenses. However, this may stall your retirement financial planning. So, it may be advised to consider the pros and cons and then make a decision.
Financial planning for the family also involves taking cognizance of your own needs. It is common to get lost in planning for your children. However, sidelining your own requirements may not be the right thing. While you save for your children, it is equally critical to save for your future necessities, such as retirement, a home purchase, travel, and other similar needs that you may have. More of this is discussed in the next step.
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3. Retirement:
Retirement is one of the most crucial aspects of a financial plan. Retirement is a time when you may not have an income to rely on. So, planning and saving for it in advance becomes essential. Inflation, deteriorating health in old age, and other life changes can make it challenging to live a financially comfortable life in retirement. This is where family financial planning can help you.
Retirement planning is conclusive of two important steps – saving and investing. Saving will help you cater to financial emergencies, such as losing a job, covering medical expenses out of the blue, home repairs and renovations, and more. Investing will help you create wealth for your future. Your savings help you stay afloat in unexpected times, and your investments give you the confidence to plan for a later stage of life. There are several instruments that can help you with retirement planning. Here are some options:
- 401(k) retirement account: A 401k retirement account is a company-sponsored retirement plan that you would get from your employer. You can use this tax-advantaged account to save tax and build your retirement corpus. There are two types of 401k accounts – traditional 401k and Roth 401k.
- Traditional 401k account:A traditional 401k account takes contributions from your pre-tax dollars. So, your contributions are tax-free, but your withdrawals are taxed in retirement as per the income tax slab you fall into then. You can pick this to lower your taxable income in the present. However, you would benefit more if your current taxable income is higher than you anticipate in retirement.
- Roth 401k:A Roth 401k account takes contributions from your after-tax dollars. So, your contributions are taxed in the present, but your withdrawals are exempt from any tax in retirement. You can pick this to lower your taxable income in the future. However, you would benefit more if your current taxable income is lower than you anticipate in retirement.
If you are under the age of 50 years, you can contribute a total of $20,500 in 2022. If you are aged 50 years or older, you can make a catch-up contribution of $6,500, bringing the total permissible limit to $20,500 + $6,500 = $27,000. The employer may also choose to contribute to your account by matching a percentage of your contributions. So, you can ask your company and accordingly plan your contributions.
- IRA: An IRA is also a retirement savings account. Unlike the 401(k), you cannot set it up with your employer. However, you can set it up at a bank, a broker, or a credit union. You can contribute up to $6,000 per annum to your IRA in 2022. If you are aged 50 years or older, you can make a catch-up contribution of $1000, bringing the total permissible limit to $6,000 + $1000 = $7,000. An IRA can be used for retirement savings as well as other qualified expenses like covering health insurance premiums when unemployed, a home purchase, the construction or reconstruction of a home, college expenses of a child, and others.
- Health Savings Account: Another tax-advantaged account, the HSA, can be used to cover medical expenses. You or your employer can contribute to the account. As of 2022, the maximum contribution for an HSA is $3,650 for an individual and $7,300 for a family. So, if you are using the account for family financial planning, you can save up a lot more. Additionally, if you are aged 55 years or older, you can make a catch-up contribution of $1,000.
You can also consider other options like a 403(b) account, a 457 account, etc. Irrespective of what you choose, it can help to maximize your contributions to all of these accounts. This is particularly important if you are 50 or older. A $1,000 catch-up contribution sums up to $10,000 in ten years. This is a lot of money and can help you make up for any lags before.
Moreover, it is also important to invest systematically in stocks, bonds, global funds, and more. One of the most successful retirement planning strategies can be to keep a well-diversified portfolio of tax-advantaged accounts and high return investments that can help you beat inflation and save enough for the later years of your life. A family financial planner like a financial advisor can help you pick out the right investments and savings for your requirements, budget, goals, and needs.
4. Estate planning:
Leaving a legacy behind for your loved ones is a bittersweet task but an important one nevertheless. You can do this before you retire or after. However, the sooner you get to it, the better it can be. Estate planning involves a will that specifies your wishes on what happens to your estate, such as your home, financial assets, collectibles, and anything or everything you own after you. This legal document can offer your children, spouse, grandchildren, and other loved ones financial security. Further, it can help protect your estate. An estate plan also includes directions on how your minor children can access your wealth in your absence. In addition to this, you can create health directives, set up the power of attorneys, establish trusts for disabled children, and more. Estate planning is essential to lower taxes and it ensures that your family members do not get stuck with high probate costs. It also eliminates the chances of family feuds or disagreements. And, it can single-handedly help a grieving family in their hour of need too.
How to make a financial plan
Different life stages can require different techniques and focus. However, the basic examples of financial plans and how to create one remain the same. The following tips can help:
- Hire a family financial advisor or planner: A professional financial advisor can bring in more experience and understanding. They can help you pick suitable options and plan for multiple goals at once. They can also help you manage your debt and reduce your expenses. This can be instrumental in eventually increasing your savings and investments. Moreover, you can rely on their advice to beat market volatility and make the most of the market conditions. These days there are many types of financial advisors that you can hire. You can choose from a fee-based advisor, commission-based planners, etc. You can also hire a professional on an hourly basis. Robo advisors are also gaining popularity. However, they may lack a personal touch. Irrespective of what you pick, you can stand to benefit with a professional on board.
- Budgeting is critical: A financial plan is another name for a budget. Having a fixed budget simplifies several things for you. It ensures that you save your money and do not overspend. It also helps you live a financially disciplined life where you are in control of your money and not the other way around. Setting a family budget and abiding by it is one of the small but crucial steps you can take toward a financially secure life, no matter your age or familial situation.
- Review your savings and investments: Investing and saving is half the job done. The second half involves reviewing and tracking your money. It is important to track your progress as it helps you rectify your errors and adopt the right strategy at the right time. Check which of your investments are not faring well. Additionally, check the reasons for their performance. For instance, if you are tracking the performance of a mutual fund, you can compare the returns with the concerned benchmark. Further, you can see how other mutual funds with a similar portfolio have performed during the same time. Accordingly, you can either continue or exit the scheme and invest your money elsewhere.
You can also keep an eye on your retirement corpus, education savings, and others at every stage of life. Although there is no fixed number for each age or stage, you can compare your progress by considering factors like your income, expenses, goals, inflation rate, and more. If you are lagging, you can invest or save more.
To conclude
Personal and family financial planning can enable you to live a stress-free life without having to worry about the increasing financial responsibilities. It can offer you a streamlined structure to stay on the right path. Further, it can be instrumental in ensuring that your loved ones are able to achieve their goals, too. It can be crucial for couples and help them handle their expenses more systematically. It can help parents offer financial security to their children. And above all, it can help individuals target their personal financial goals without getting sidelined by other responsibilities.
To ensure that you are able to provide for your family and live a life with peace of mind and financial adequacy, you can consider hiring a professional family financial planner. Use the free advisor match service to engage with a professional financial advisor, who can help you create a financial plan for the family based on your and your family’s unique financial needs. Based on your requirements, the service matches you with 1-3 advisors suited to meet your financial needs and goals.
For additional information on how you can plan your finances for the future to meet your family’s financial needs as well as your own, visit Dash Investments or email me directly at dash@dashinvestments.com.
About Dash Investments
Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.
Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.
CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.