5 steps for making a solid financial plan for your family
Authors: David Leto
Most families would list financial stability as one of their key priorities. A stable financial situation is not something that happens accidentally. It requires planning. Thankfully, financial planning is not as difficult as some might think.
The following are five steps for making a solid financial plan for your family.
1. Keep Track of Where You Are Spending Your Money
The first step toward creating a financial plan is making a budget that lays out how you are spending your money and where your money is coming from every month.
Budget creation can be simple. You could use a pen and paper to track your income and expenses in a notebook. There are budget template spreadsheets readily available online that can help you record your spending.
There are budgeting apps that link to your bank account, investment accounts, and credit cards to help you automatically track your income and expenses. Once you have a clear picture of your expenses, you can make a plan.
2. Set Goals
Now that you have a comprehensive report of your income and expenses, it's time to think about your financial goals. Most financial experts recommend that your first goal be to build an emergency fund that you can use during a personal financial crisis. It is recommended that you have enough money to live on for three to six months.
Ask yourself, where do you want your family to be five or 10 years from now? Avoid generalities. Instead, write down specifics, like you want to have your mortgage paid off in 10 years, have a $700,000 investment portfolio, or want to visit 10 countries. If you have specific goals, you can stay on track with your financial plan.
3. Make Your Debt Disappear
With a clear picture of your finances in hand, an emergency fund set aside for a few months, and your specific goals for the future, the next step is to make your debt disappear.
There are several proven methods for attacking debt. One method is the snowball method. You will pay the minimum on all of your credit cards or other sources of debt, but you aggressively pay the source of debt that has the lowest balance.
If you have four credit cards and the first one has a balance of $5,000, the second has a balance of $4,000, the third has a balance of $3,000, and the fourth has a balance of $1,000, you would pay the minimum payment on the highest three cards, but you would aggressively put all of your extra money into paying off the card with the $1,000 balance.
Once that card has been paid off, you will switch to aggressively attacking the card with the $3,000 balance and so on.
It may be beneficial to do a debt assessment. Many people have been able to achieve financial stability by settling their debts for less than what they owe.
4. Start Saving for Major Goals
Once you have an emergency fund and your debt paid off, it's time to start saving for your long-term goals. You may need to re-examine how you are spending your money and see if there are ways to cut expenses or increase your income.
Many have turned to the gig economy to add more money to their budget. It's important to make sure that the extra income you are earning is being put into some form of savings account directed toward your goals.
5. Monitor and Adjust Your Financial Plan
Financial planning is not just a one-and-done type of system. You will always need to review your personal financial situation. With time, your goals might change. Your income might increase, or your debt might drastically go down. You may see that your investments are performing better than expected, or there may be pressing financial situations, like health issues, that require you to divert from your original plan.
As you make a financial plan for your family or as you review your plan, don't confuse your long-term goals with short-term fluctuations in your personal situation. Don't change your family's financial plan without considering the entire picture.
The sooner you make a financial plan for your family, the more control you will have over all your money. You will soon see that instead of working for your money, your money is working for you.