The Family Financial Planning Process

*Disclaimer*: the opinions expressed in the Family Financial Planning article and the Frugal Fun Finance website are for general informational purposes only and are not intended to provide specific investment advice or recommendations on any financial or investing products. Any financial advice should be provided by a licensed professional.

Introduction – Family Financial Planning

Family financial planning – a crucial part of everyone’s life that often gets pushed under the rug, delayed or ignored. Are you one of the many millions of Americans who ignore or delay creating a financial plan? If so, you aren’t alone. However, it’s still important to create one. Financial planning is a big and scary topic, but it doesn’t have to be. There are many resources out there to help you get started.

In this article, I’ll go over the definition of family financial planning, the benefits of financial planning, and steps you should take to create and maintain a financial plan for your family. While many articles focus on estate financial planning and life insurance, these topics should be discussed with a financial professional. I’ll cover different areas of financial planning for your family that touch on eliminating debt, building an emergency fund, covering your day-to-day expenses, and saving for short-term and long-term goals. Plan for your future, live frugally and enjoy life!

When you manage your personal finances as a family, build an emergency fund and manage your expenses, you’ll be well on track to meet your long-term financial goals and plan for your future!

Read on to learn about family financial planning.

What is Family Financial Planning?

In the simplest terms, family financial planning is a complete financial planning process that helps you manage your money as a family throughout the years. The plan is dynamic and ever-changing, adjusting to the different phases in your life.

Benefits of Financial Planning

There are many benefits to setting goals, creating a financial plan and sticking with your plan. Aside from being able to pay off debt, covering your expenses in cash and actually having money leftover at the end of the month, some of the other benefits include:

1. A sense of satisfaction from hitting your goals.
2. A closer family bond and strengthened relationships. When you work together on something and actually accomplish it, you’ll feel proud that you’ve done something as a family!
3. Enjoying a higher standard of living. When you consistently meet your budget and spend wisely, you’ll have extra money for other things in your life. If you haven’t been blindly spending $6 a day on coffee or $15 a day on lunch, you’ll be able to splurge on nicer items. For example, if you only buy coffee once a week instead of every day, you can save up to $1872 a year ($6 x 6 days a week x 52 weeks in a year). Budgeting, spending and saving money all go hand-in-hand with a financial plan.
4. General peace of mind. When you have your finances under control, you’ll sleep better at night!
5. Motivation to create, plan and execute goals in other areas of your life. For me, when I accomplish something in one area of my life, this motivation often spills over into other parts of my life. If I create a workout routine and stick to it, I not only have more energy to get through my day, but I feel motivated to create a consistent schedule for other aspects of my life, like making my lunch every day and practicing frugal and thrifty living.

Family Financial Planning Guide

I’ve covered just several of the amazing benefits you’ll experience after successfully undertaking creating a financial plan for your family. Let’s get into the features of financial planning for families including creating and executing the plan.

How Do I Start Financial Planning for my Family?

When creating a financial plan for your family, you’ll want to undertake several important steps to accomplish your goals. It’s important to follow these steps in the general order I’ll lay out. Why is this? Well, first, you’ll need to create and set your goals. Without creating objectives to accomplish something, it’ll be nearly impossible to achieve anything! When you have a target, you’ll feel motivated to work towards your goals and will be able to keep your eye on the prize.

Financial Planning Process

I’ve broken the financial planning process down into several steps, what I deem ‘the six steps of financial planning’. Let’s get started with the process.

Step 1: Involve the Whole Family in Your Financial Planning

The first part of the 6 step financial financial planning process: getting your entire family on board. If you have younger children, include them in the conversation. It’s never too early to start planning!

Involving Younger Children in Financial Planning

Financial planning for young families is not as complex or involved as when you have older children. However, it’s still a great thing to do. Want a way to get your kids on board with setting up good financial habits for life? Why not give them their own piggy banks? If you haven’t already, give them a weekly allowance. Teach them the difference between saving and spending. Provide examples of what they can get (like larger toys, trips to the amusement park, a new slide) if they save their $10 each week for 1-3 months, rather than spending it on toys or chocolate every week.

Each week, they’ll have the choice of whether to save their money or spend it. If they learn how to save money for special occasions, they’ll learn the benefits of delayed gratification.

Involving Older Children in Financial Planning

If you have older children (teenagers), involve them in the conversation. Explain the importance of delayed gratification and introduce them to the difference between saving, spending and investing. Additionally, ask your teen(s) what they’d like as a reward after the family hits a specific savings goal. Maybe dinner and a movie out as a smaller reward, or a weekend getaway out of your state for a bigger reward? Whatever you do, get your kids involved in the process early on so you’re set up for success throughout the financial planning process.

Last but not least, if you’re the one in your family who decided to undertake family financial planning, get your spouse involved in the process. Set aside an evening to chat, free of distractions. Turn off your phone, brew a cup of tea and sit on the couch. Explain that you want to start saving towards longer-term goals. If this topic is new to you, feel free to focus on one area of financial planning – for example, simply focusing on getting out of debt. If you need help, consult a family financial planner or investment professional to help you start with the first step.

When you involve your kids and/or spouse in the financial planning process, they’ll be motivated to develop good habits for life and you’ll be able to achieve your goals together!

Step 2: Set Financial Goals

Once you’ve gotten your entire family on board with the family financial planning process, it’s time to create those goals. The first step is to determine what you want to achieve. If you’re new to financial planning and have some debt, I recommend focusing on the next year. Why? This is an achievable timeframe to get rid of some debt and maybe even set aside some savings.

Next, write down and categorize everything into 3 parts:

Expenses – what you spend per month. This category includes your day-to-day expenses including your rent or mortgage payment, car payment, groceries, utilities, and any extra spending.

Debt – what you owe. This includes loans to family, friends and acquaintances, loans from the bank and interest from a line of credit, credit card, mortgage or car payment.

Savings – any savings you have. This includes cash savings and money invested in stocks, bonds and other financial assets.

Let’s get into the meaning of each category, why they’re important, and how you should go about determining how much you need to be saving towards each category.

Step 3: Eliminate Debt

The most taboo part of finance to talk about, but arguably the most important! Debt isn’t always bad. If you’re going to school or have attended college, university or trade school, you may have acquired some student loans over the course off your studies. Nothing wrong with that! Education is one of the biggest investments we can make. However, it’s not a great idea to carry this debt forever. It can negatively impact your credit score and you’ll accrue interest from carrying a balance on the payment.

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Step 4: Build an Emergency Fund

After you’ve tackled any debt, the next step is to build an emergency fund. Why is an emergency fund important? It’s simple: life happens. There are so many things out of our control. Whether we want to think about or not, something can and will go wrong at at least one point in our lives. Maybe your car suddenly broke down. One day, you’re roller-blading and collide into a truck. You’re not in critical condition (thank goodness!), but you’ve suffered a broken bone and need to go to the hospital. If you’re located in the US, this could mean some costly medical bills if you aren’t covered by insurance.

How do you get started with building an emergency fund? You should break this process down into two steps:

1. Building an emergency fund to cover general living expenses
2. Building an emergency fund for other expenses – like medical bills or paying for car repairs

Let’s go over the two types of emergency funds.

Emergency Fund Type 1: Living Expenses

The first category of emergency funds is to cover if you are suddenly laid off – or, if you lose a bunch of clients or your business goes downhill if you’re a freelancer or self-employed. Why is it important to have emergency living expenses? As mentioned before, life happens. While I don’t want you to be living in constant fear or worry, it’s important to be realistic and practical. At any given time, something completely out of your control could happen that may cause you to lose some or all of your income overnight.

Think about the 2020 coronavirus pandemic. For millions of people, their income was drastically reduced or completely eliminated (the case for many food service workers, musicians and entertainers). While some countries had solid support systems in place to financially support those whose income had been reduced or completely cut off, the amounts given may not be adequate for the average family. They were mostly meant to help supplement income on a temporary basis.

For these reasons, it’s crucial to have a few months of living expenses saved up.

How Much Should I Save for Emergency Living Expenses?

Generally, it’s a good idea to save up 3 to 6 months of living expenses. Why this amount? It’s a good balance between having a few months of cash to cushion you while you get back on your feet. On the other hand, it isn’t so much that you’ll miss out on gains from compound interest. If you have tens of thousands of dollars saved in cash, you’re losing out on interest from investing the money into stocks, bonds and other assets. What’s more is that you’re losing purchasing power every year due to inflation.

How much should you save then? Should you save 3, 4, 5 or 6 months’ worth? Maybe even more? Generally, if you are a single person with no possibility of support from family and friends or a family on a single income, you’ll likely want to save up 6 months’ worth of expenses – maybe even more.

On the other hand, if you find yourself in a difficult financial situation and you have the possibility of support from family, you may want to save closer to 3-4 months’ worth of expenses. Additionally, if your family is a dual-income household, you may feel comfortable keeping only 3 months’ worth of living expenses in cash and investing the rest. In summary, the choice is up to you!

How Do I Increase my Emergency Living Expenses Account?

If you’re just getting started with saving, set aside a specific amount each month. If you want to save, say, $4500 in one year, set aside $375 each month. After you get paid, transfer the funds to a specific bank account for emergency living expenses. Want to make it even easier and avoid forgetting to do this? Set up an automated transfer. Many banks will allow you to set up a recurring deposit so that your bank will automatically transfer funds every month, 2 weeks, or even on a specific day of your choosing. The choice is up to you. Do what makes the most sense for you and what you think will help you best achieve your goal of fully funding an emergency living expenses account.

Emergency Fund Type 2: Other Expenses

Once you’ve saved up 3-6 months of living expenses, you can create another goal of saving up for emergencies. We all have different expenses that come up in our lives. For me, if my laptop were to suddenly break, it would be a huge expense for me to replace it. My laptop is a crucial way for me to get work done and communicate with my family and friends. I basically can’t live without it!

On the other hand, some people may be able to live without a laptop for a while, but a car breakdown or medical bill would devastate their savings account (and mental health). Choose one or two large expenses you might incur if something valuable you own suddenly breaks.

If you live with a partner or have a family, take an hour or two to sit down and discuss the major expenses in your life. Once you’ve determined the biggest expenses, choose one or two to focus on. You may even take this time to discuss if you can eliminate these expenses from your life and practice frugal and minimalistic living.

Let’s say that your biggest expense is replacing your electric hot water heater. You know that yours’ is quite old and a new one will cost $1000-1500. Over the next 6 months, you want to create an emergency fund to replace this, should it suddenly break.

Take the amount of money it would cost to replace it (the highest possible amount to be safe) and divide it by 6. Let’s say that you estimate that the most expensive water heater will be $1800.

$1800 total purchase / 6 months = $300

Therefore, you’ll want to set aside $300 per month towards your emergency account for this purchase.

Step 5: Create Different Sinking Funds

Once you’ve paid off your debt and created emergency funds to cover living expenses and large, one-off expenses, it’s time to focus on saving for other specific items. First, what is a sinking fund? This is a category of a savings account that is for a specific purchase. Similar to an emergency savings account for a specific expense, a sinking fund is typically for fun stuff. For example, a vacation or new video game console. In general, you should create a separate bank account for each sinking fund. Why? It makes it easier to visualize how much you’ve saved so far and how far you have to go to reach your goal.

To save using the sinking fund strategy, follow the same method used when saving up for emergencies. Determine how much the item will cost and when you need to buy it, then determine how much you’ll need to save per month to reach your goal. You can always put something on credit, but we’re practicing smart finances here. When you buy using credit cards, you end up spending more money long-term on interest. Credit cards are a tool to build your credit score and you should avoid using them unless you plan on paying the balance in full every month. While it isn’t always possible, it’s the best thing to do so you don’t accrue interest or negatively impact your credit score.

Give the sinking fund saving strategy a try. Before you know it, you’ll have saved up for that big trip in no time without the use of credit cards!

Step 6: Create a Family Budget Planner and Execute

Once you’ve assessed and written down what you exactly own (savings and investments), spend and owe (debt), it’s time to put it into a formal plan! Use a budget planner template or an Excel spreadsheet to cover all your expenses and savings each month.

Case Study: Family of 4, 2-Year Plan

For the purposes of this article, I’ll provide a sample of family budget planning for a family of four with two kids. This plan focuses on the next two years.

After tax, the family takes home $6,100 per month. The family has some moderate debt and has both short-term and long-term financial goals, broken down into the following five categories:

1. EXPENSES – Monthly Expenses: $5,000
2. DEBT – Debt: $3,000 credit card debt from interest
3. SAVINGS – Emergency fund: $1000 balance
4. SAVINGS – Sinking fund (vacation fund): $0
5. SAVINGS – Retirement fund: $80,000

Let’s get into creating a financial plan for this family so they can:

• Meet their monthly expenses of $5,000 (that include occasional splurges like dinner out once a month and one outing to the theme park or movie theatre per month)
• Completely eliminate their $3,000 worth of credit card interest
• Build their emergency fund up to $7,000 (save $6,000)
• Save $3,000 for a family weekend getaway
• Invest $600 total per month for retirement for the couple

Old Budget vs. new Budget

Here’s an example of how this family would cover the aforementioned expenses, rid themselves of their debt and meet their savings goals:

Old Budget

First, take a look at the old budget. The family made a total of $6,100 after-tax and spent over $1,100 on extra things like takeout, clothing and other impulse purchases they don’t track. The family currently doesn’t save anything at the end of the month.

Old Budget	1 month	24 months
After-Tax Income	6,100.00	146,400.00
Expenses
Regular Monthly Expenses	5,000.00	120,000.00
Misc. Spending – Wants	1,100.00	26,400.00
Total Expenses	6,100.00	146,400.00

For visual purposes, here’s a family budget pie graph to show the percentage of expenses that go towards:

1. Regular monthly expenses: $5000 / 6100 = 82%
2. Misc. Spending – Wants: $1100 / $6100 = 18%

New Budget

After implementing the family budget, they are able to not only cover expenses, but pay off the credit card interest and also save $975 per month towards their emergency fund ($250/month), their vacation savings ($125/month) and retirement ($600/month)!

New Budget	1 month	24 months
After-Tax Income	6,100.00	146,400.00
Expenses and Savings
Regular Monthly Expenses	5,000.00	120,000.00
Credit Card Interest Payment	125.00	3,000.00
Emergency Fund	250.00	6,000.00
Sinking Fund – Vacation	125.00	3,000.00
Retirement Savings	600.00	14,400.00
Total Expenses and Savings	6,100.00	146,400.00

Here’s the family budget pie graph after implementing their debt, saving and investing plan with:

1. Regular monthly expenses: $5000 / 6100 = 82%
2. Credit card repayment: $125 / 6100 = 2%
3. Emergency fund: $250 / 6100 = 4%
4. Sinking fund – vacation: $125 / 6100 = 2%
5. Retirement: $600 / 6100 = 10%

In short, by adjusting their budget and creating a family financial plan, not only was the family was able to completely pay off their credit card, but they were also able to hit their emergency fund goal of $7,000 ($6000 + the existing $1000), save for their $3,000 vacation, and save/invest $600 per month towards retirement!

While it take some planning, creating a course of action and sticking to it will help you achieve your goals.

While I’ve covered how to create the budget planner, including which categories to include and how to set aside a bit of money each month to achieve goals over a specific period of time (in this case, 24 months), let’s discuss the importance of each category, and how to determine what you should be saving and investing towards.

Bonus Step: Track Progress and Reward Yourself

Now that I’ve covered the 6 steps of the financial planning process, I’m including a bonus step that’s often overlooked. You’ll not only want to track your savings using a budget template, but you’ll want to reward yourself and your family for achieving your financial goals this year and beyond. One other way to get your kids involved in the process? Choose a reward for the entire family to enjoy once you’ve hit certain financial milestones!

If you have more than one child, make a list of rewards they each want. If one child wants a trip to the amusement park and the other wants to go out for pizza, why not combine them into one larger reward?

What is the 50 30 20 Budget Rule?

Besides creating sinking funds and a family budget planner, take your smart family financial plan one step further. Similar to the 30 30 30 10 strategy, the 50 30 20 budget rule dictates how much you spend on which items per month. These expenses are broken down into the following categories:

• 50% for needs – rent/mortgage, groceries, gas, utilities
• 20% for wants – new clothes, vacation, takeout, movie night, amusement park, etc.
• 30% for investing and saving – education fund, retirement account, sinking funds

Implement the 50 30 20 budget rule by adjusting your Expenses and Savings categories. Use the zero dollar budget method to ensure every dollar gets a job.

For example, if you make $5000 per month after tax, spend $2500 (50%) on your needs, $1000 (20%) on needs, and $1500 (30%) on investing and saving.

If you’re feeling extra ambitious, you can use the 30 30 30 10 strategy instead. Alternatively, move around the percentages to suit your needs. You might allocate 40% towards needs, 30% towards wants, and 20% towards investing and saving.

In conclusion, to what works best for you! Feel free to experiment with different percentages for each category and find your fit.

How to Manage Family Financial Planning – Other Methods

Besides the seven crucial steps to family financial planning I’ve mentioned above, there are other ways to manage family financial planning. Here are three selected methods that you can use to:

1. Plan a family travel budget

2. Determine how much money you currently own (assets) vs. owe (liabilities) with a net worth tracker

3. Plan for retirement

1. Family Travel Budget

Creating a special family travel budget is a great way to plan ahead and keep within your means when you go on that big vacation. How do you go about creating a family budget? Follow the same method as regular monthly budgeting.

Determine how much you want to spend on your entire vacation. Then, determine how much you’ll spend on each category. For example, if your budget is $3000, your expenses might be something like this:

$1000 for accommodation

$100 daily spending for 7 days = $700

$300 for gas and groceries

= $2000 total

Plan ahead by saving enough each month. If you want to save up for the trip in 5 months, you’d need to put away $400 per month ($2000 / 5 months = $400).

2. Net Worth Tracker

Use a net worth tracker to determine how much you own versus owe. Wait a minute! What does that mean? I’ll lay it out simply below:

Own: your assets, including cash, stocks, bonds and mutual funds

Owe: your liabilities, including car or mortgage payments, credit card interest and other interest

Own – Owe = net worth

For example, let’s say you’re a 30-something with the following financial situation:

Own

• $50,000 in a retirement account consisting of stocks, bonds and ETFs
• $10,000 invested in single stocks
• $5,000 in cash
• Total = $65,000

Owe

• $10,000 outstanding on a car payment
• $15,000 left on a student loan payment
• Total = $25,000

$65,000 – $25,000 = $40,000

Therefore, your net worth would be $40,000.

Why is it crucial to track your net worth? It’s important to know how much you have in assets so you can calculate how much you need to put away for retirement and if you’re saving enough.

There are hundreds of templates to choose from on Pinterest. You can find some great net worth trackers here.

3. Retirement Planners

Last, but not least, using retirement planners can help you manage family financial planning for long-term retirement planning. While most of us don’t want to think about it, the reality is that one day, we will no longer have the capacity to work. We’ll need to rely on an annuity payment from the government and our own savings to pay for our expenses in the golden years.

While retirement planners are usually human beings who advise you on wealth management, you can use a vast array of online tools to help you calculate:

• How much you currently own (assets)
• How much you currently owe (liabilities)
• How much you have saved in a retirement account
• Your age
• How much you plan on putting in savings accounts vs. investing accounts
• The expected compound interest rate you’ll receive. This varies drastically depending on your risk tolerance. For example, if you’re not afraid of market fluctuations, you may feel comfortable investing 90-100% of your funds in stocks and ETFs, which are generally more volatile during periods of market uncertainty. If you want to take the safe route and you expect you’ll take your cash out sooner, you might want more money invested in bonds, which have a lower risk and lower return. Consult a financial advisor for advice on your specific situation.

Check out this article from Forbes for 5 excellent retirement planners to help you get started.

Conclusion: Family Financial Planning

The importance of family budget planning cannot be understated. When you have a solid plan, you’re more likely to achieve your saving, investing and debt repayment goals! There are many tools out there to help you get started on your financial planning journey and track your savings progress. Whether you’re a single person, couple or family with kids of any age, financial planning is for everyone. There are so many ways to undertake creative financial planning and saving. Have fun with trying out different ways to save and make money!

If you create a plan, you’ll feel a lot more confident and will have something to work towards. Additionally, once you hit your goals, you’ll have the opportunity to celebrate with your family.

Be proactive and secure your family’s future with planning!

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