The Retirement Road Map® you create evolves with changes in your life. Perhaps you were single when you opened your first retirement account. With time, a marriage and family can impact financial goals and the strategies for achieving them. Family is a major consideration in financial planning from saving for college to estate and legacy arrangements, navigating emergencies, and establishing and executing healthcare requests. A family financial plan considers the fiscal well-being of the entire household. Including family in the conversation about immediate and long-term goals can help set expectations, devise a plan, invest for the future, and meet financial challenges as they arise. The new year presents an opportunity to build a more comprehensive strategy that includes your family.
Benefits of a Family Financial Strategy
The advantages of developing a family plan extend beyond monetary considerations. A solid financial strategy can nurture you and your loved ones in the following ways:
- Enhance financial security: A strong financial plan including an emergency reserve can cushion against hard times and unforeseen events such as medical emergencies and economic downturns.
- Establish economic objectives: Setting financial goals with clear benchmarks and committing them to writing offers better chances of successfully meeting them. According to research from Hearts & Wallets, a data and market intelligence firm, individuals with a written financial plan are more likely to save at least 10% of their income.
- Improve mental and social well-being: A financial advisor manages a family’s assets and ensures sound decision-making. This support can reassure clients and boost their confidence knowing their nest egg is in good hands. The Financial Planning Standards Board found that 46% of consumers with a financial advisor and an income of $60,000 or less reported improved mental health, and 44% felt that financial planning enhanced the quality of their family life.
- Cultivate financial intelligence: Open communication between parents and children about money and including them in discussions about certain economic decisions can instill smart habits and impart financial wisdom that extends to future generations, leading to wealth preservation.
Considerations for Family Financial Planning
A complete financial strategy includes the following elements, and families should reflect on each and discuss them with a financial advisor:
- Life insurance: A life insurance policy can pay off a mortgage and other debt, replace income, cover end-of-life expenses, and fund education in the unfortunate event of death. Both spouses should have coverage, and while many individuals have life insurance through an employer, a financial advisor can help determine if the coverage is sufficient.
- Disability insurance: This coverage ensures that prolonged illness or injury does not prevent a family from meeting their financial obligations. It protects income, preserves savings, and manages debt.
- Education savings plan: A few account types are specific to funding education. One such account is a 529 plan. These accounts can grow tax-deferred and withdrawals are tax-free provided they are used for qualified educational expenses, such as tuition, books, and housing. A financial advisor can help families understand their education savings options.
- High-yield savings account: High-yield savings accounts offer higher interest rates, low investment risk, and liquidity, making them suitable hosts for emergency funds. However, banks periodically change their annual percentage yield (APY), so it’s important to remain vigilant for interest rate drops.
- Long-term care: Most people will need some long-term care in their lifetime. Creating a plan to cover costs is essential to preserving assets and ensuring greater control over future healthcare decisions. This may include a health spending account (HSA) and/or long-term care insurance.
- Legacy planning: A legacy plan ensures that wealth and assets transfer smoothly to beneficiaries and loved ones after death, maximizing benefits, avoiding probate, and minimizing risks.
Developing a Family Financial Strategy with an Advisor
A financial advisor may want to discuss the following topics to help devise the most successful plan for your household:
- Financial position: To determine a family’s overall economic standing a financial advisor will consider net worth, cash flow, and debt-to-income ratio, weighing real and potential liabilities against assets and income.
- Goals: Clients should be prepared to define financial objectives such as home buying, education funding, and retirement planning.
- Budget: The household budget including all income and expenditures will likely be part of the conversation. An advisor will also seek ways to manage spending and increase savings as part of a larger financial plan.
- Emergency fund: Families that come to the financial planning table without an emergency savings account should expect to address that and establish a cushion for unexpected situations.
- Investments: An advisor will strive to diversify investments based on risk capacity and tolerance so families can create a balanced portfolio that grows and builds wealth over time.
- Tax management: Implementing efficient tax strategies that minimize liabilities and maximize savings as family circumstances change will be a priority in the financial planning relationship. This includes deductions, credits, tax-advantaged accounts, and best practices for using them.
Creating a documented strategy tailored to your family’s needs and goals is one of the first steps towards a bright and stable financial future for every member. Open communication fosters unity, promotes well-being, and ensures everyone is aligned and invested in achieving shared financial objectives. Start the new year right. Reach out to one of our advisors at SHP Financial today for a complimentary review of your finances and begin creating a comprehensive plan for your family’s future.