Your family is the most important thing in your life. While you might always want to provide everything they want and need, it’s not that easy. Everyone wants to go on family vacations, provide a good education for their children, and even splurge on things like Christmas and birthday gifts. But all these things cost money, and keeping your family happy is a challenging financial task, requiring hard work and personal sacrifice.
Creating a financial plan for your own family will help to put things into perspective. Not only will it give you an idea of the things you can afford, but it will also help you plan for future expenses and give you the best chance of making the best financial decisions for your family.
Here are six steps you can take to create a financial plan fit for your family.
1. Who needs money, and for what?
Every member of your family is different. Your teenage son might want a video game console, while your young daughter would opt for a new bicycle. You can’t treat the financial needs of each family member in the same way.
At the same time, you can make some assumptions about your children’s needs based on their trajectory. You can assume that your child will want to get their driver’s license, have a car, go to university, and even possibly travel abroad.
Don’t forget about the needs of you and your spouse. Maybe you want to have a blowout party for your 10th anniversary or plan to go on a second honeymoon in a few years when the kids are out of the house. Or, perhaps your wife wants to open that business she’s been dreaming about?
2. Preparing for future costs
Although you can’t predict the future, you can anticipate and plan for future costs. Think about your child that is quickly becoming a teenager. They will soon be applying for their driver’s license and will want a car of their own. If you prepare now to save €5,000 total for your future teenager’s car, you can anticipate how much you would need to save over several years, making the expense more manageable over time.
Breaking down future costs into smaller, more manageable savings is a more sustainable way to prepare for expenses. After all, it’s easier to save an extra €20 per month over a few years than it is to save €5,000 in a short amount of time.
3. Can I afford it?
This is often the million-dollar question. Without having a full financial plan, you won’t have any idea of what you can and cannot afford. One way to increase what you and your family can afford is to seek other income sources outside of your regular job. This can include selling unwanted items from your home, picking up a side gig like freelance writing, or any other number of income-generating activities.
Another way to afford more things for your family is to cut out unnecessary expenses. Maybe you are still a member at the neighborhood gym but could easily workout at home and save the monthly payment. Or, maybe you are paying for several streaming services when your family could be just as happy agreeing on one. These expenses might seem small, but they add up. Think about it, if you just cut out one €50 expense per month, you are already saving €600 per year.
4. Creating tangible goals
It’s all well and good to want to take your family on vacation, buy a new car, and save for retirement, but it’s more important to set tangible and sustainable financial goals. Putting all your finances down on paper (or an electronic document) will paint the full picture of your financial standing. From here, you can determine what realistic goals to set for yourself and your family and work toward these goals over time.
This is also a great way to get your family involved. If you have tangible, realistic goals for your children, they can chip into the family savings account. Even if it’s only a minuscule amount of money, it will get them on a good learning path about financial education and money management.
5. Don’t forget that emergency fund
It’s the one thing many families forget about but shouldn’t. Your emergency fund isn’t just a ‘nice to have’; it’s an integral part of your financial plan. We previously discussed budgeting for future costs, but what happens when you have a cost that is totally and completely unexpected? That’s what your emergency fund is for.
Imagine your family is on a holiday trip that you had planned and saved up for nearly a year. Everything is going perfectly until your car breaks down and you are forced to pay €1,000 in unexpected repairs. With an emergency fund in place, you can rest assured that you’ll have enough to pay for the repairs without having to stress or cut your vacation short.
Most experts agree that you should save between three to six months’ of expenses in an emergency fund, just in case you lose your job or fall into tough times. Regardless if you have saved that much money up until this point, you can start an emergency fund with as little as €100 and continue to put money away.
6. Maintain flexibility
The only thing certain in life is that you can’t predict the future. Something unpredictable could happen to you this week, this month, or in the next few years. Because you can’t plan for what you can’t predict, you always need to maintain your financial flexibility. It’s important to have a budget and financial plan in place, but just as important to adjust that plan when something comes up.
It might be an unplanned pregnancy, the health deterioration of a loved one, or some other unplanned event. Whatever it is, you want to be financially prepared to welcome the event and not have to struggle through it financially. Some unpredictable things are stressful enough that you don’t want to have the added worry of a new financial burden weighing you down.
Family comes first
These financial planning steps will help you maintain a good perspective on your family’s finances. With a family financial plan, you will not only get a sense of what you can afford but how you can achieve realistic goals for your family’s financial future.