Family How to Create Your Family's Financial Plan

by Rebecca Lake | April 04, 2019

How's your long-term financial plan looking?

If not quite in focus, you're not the only one — this is one of those priorities that tends to fall off the daily to-do list of busy families.

Graeme Gibson, a chiropractor in Seattle, WA, understands this firsthand, and regrets that he and his wife, Kate, delayed having financial talks early in their marriage. "While it seems obvious now, 15 years later we missed out on saving tens of thousands of dollars toward retirement, investments and our children's college funds," says Gibson. The positive side is that they're now dedicated to working together to achieve financial wellness.

Ideally, financial discussions get under way when a couple gets married and continue as they experience various life events, says Deidre Fernald, CFP®, who is a wealth planning specialist at Citi Personal Wealth Management. In reality, however, "many families don't sit down and have a family team meeting." You may need an expert's help, but financial planning ultimately begins at home with the ones you love. Getting everyone involved — from small children to aging parents — can be a challenge, but it's worth the effort to create a comprehensive plan that's as unique as your family.

Start with your family's vision and financial goals

Fernald's experience working with families to manage wealth has taught her that the first ingredient of a financial plan is a well-defined set of goals.

For most clients, she says, the number one goal is having the type of lifestyle they want in retirement. Paying for their kids' college and helping aging parents understand and plan for their retirement income and long-term care needs are also on the list. Estate planning — meaning having a will in place and possibly a trust, as well as the right type and amount of life insurance — typically rounds out a family financial plan. And for some families, that vision may also include things like planning regular vacations, buying a second home or investment property, or creating a legacy of charitable giving.

Prioritizing and talking through each goal to understand where they fit within the larger picture is essential, Fernald says, as is discussing expectations. For example, if your child's expecting you to cover 100% of college costs while you prefer a 50/50 split, that's a talk you want to have well before move-in day of freshman year.

Gibson's children aren't college-age yet, but he and his wife are already looking ahead to determine where it fits in their vision. But, he says, they're not focusing on college at the expense of their other financial goals. "While we'd like our children to attend college debt-free, we feel it's important that our ability to retire is not at risk," he shares. For now, the central goal is getting retirement savings and investments on track to make up for getting a later start on financial planning.

You may experience some parent guilt about putting your own retirement needs ahead of your children's education; that's normal. Fernald says to put it in perspective by thinking about which matters more to you: being able to enjoy your life in retirement with minimal financial worries or keeping your kids out of debt for college.

"It should be about enjoying life," she says, which is why Gibson feels initiating a conversation about expectations early, say when your child enters their freshman year of high school, is so important. The conversation can be open-ended and ongoing to allow for some flexibility.

Quote
Prioritizing and talking through each goal to understand where they fit within the larger vision is essential.
End Quote

In Fernald's case, for instance, her parents told her when she started high school that there was enough money to pay for community college, but didn't commit right away to helping with additional college costs. Within your own family, you should actively talk to your kids about what's doable and realistic both now and as your financial plan evolves.

That same principle can be applied to other family money discussions. Aging parents, for instance, may not feel comfortable discussing their finances with you or they may prefer to manage their affairs on their own until your help is necessary.

Fernald recommends easing into those difficult conversations by first letting your parents know you have their best interest in mind. She suggests a script for getting the ball rolling: We just want to know that you will be OK if anything happens to your health and that you have enough income to support your needs. And if anything happens, we want to be sure we're able to make the appropriate financial or medical decisions on your behalf, if necessary.

"Nearing retirement is a good time to have that conversation," she says. "Too many grandparents pass away with no estate plan in place and that causes problems."

mother and daughter playing with toys on the floor

Fine-tune your spending plan

A budget is the most important element of any financial plan to help guide every money decision. Surprisingly, Fernald says that the vast majority of the clients she works with don't budget regularly.

Kelan Kline, who documents his family's financial journey along with his wife, Brittany, at The Money Couple blog, says they had to make a firm commitment to working on their budget together. But once they did, the other parts of their financial picture — increasing wealth, paying off debt and investing for the long-term — began to fall into place.

The secret for Kline and his wife was putting their ideas about budgeting and financial planning on the table early on. "Understand each other's differences and communicate your concerns from the start," he says. If you don't have a family budget, begin a listing of your monthly expenses and your income. From there, you can make it more detailed, Kline says, taking deeper dives into your spending patterns, for example, to find additional money for saving or investing.

A discussion of wants and needs has been central to family budgeting talks in the Gibson household. The couple regularly talk to their kids about saving and investing, as well as what things cost. They encourage their kids to practice budgeting on their own by purchasing items with money they've earned doing chores or from gifts. They're picking up the budgeting habit early while playing an active role in the family financial plan.

As kids enter the tween and teen years, encourage them to add to the discussion by talking about their own financial goals. Help them figure out what's realistic, then break the steps down as a family to determine an action plan for achieving those goals.

Quote
A budget is the most important element of any financial plan — to help guide every money decision.
End Quote

Look beyond the budget

A budget can be one of the most useful tools for financial planning — but it's not the only one you may need.

A good financial plan for families will help manage risk, Kline says, by including products like life insurance, disability and health insurance. Disability insurance can protect your ability to earn an income if you're injured or become ill. Health insurance can keep medical costs down and life insurance can provide financial reassurance to your family if you pass away.

Other product solutions that you can implement for your family's financial plan include:

  • Employer-sponsored retirement accounts
  • Individual retirement accounts
  • Tax-advantaged savings accounts
  • Custodial accounts for minor children
  • College savings accounts, such as a 529 or Coverdell ESA
  • Taxable investment accounts
  • A last will and testament
  • A financial power of attorney
  • A revocable trust
  • A living will

Additionally, there are other financial resources that may be of use to aging parents, such as long-term care insurance or annuity products that provide lifetime retirement income. A financial planner can help in guiding you toward the tools to mold your plan over time.

Be adaptable and stay connected

Your financial plan isn't meant to be set in stone. Staying fluid and flexible can make managing challenges easier. Taking time to come together as a family to discuss your plan can help you decide where you want to go next financially.

Kline says a family financial plan should be revisited in detail at least yearly, along with monthly and quarterly checkups. You'll also want to review your plan when there's an unexpected event, such as a job loss or receiving an inheritance, so you can work out those wrinkles for the benefit of the family as a whole.

Father and son giving each other a high five

It's also important to factor in major life milestones for other members of the family. Your daughter's 18th birthday or your father's 65th are occasions to celebrate, but those are also times to reflect on family finances if they signal the beginning of a new life phase.

Remember, Kline says, that "as things change, your financial plan will change, and, just like everything else that involves a family, it's important for everyone to be onboard."

Rebecca Lake

believes in being financially prepared for all of life's possibilities. Her family financial plan involves early retirement for herself and a debt-free college education for her children.