The last two years have been a rough ride. As a reminder for 2022, if you haven’t taken the time to sit down and organize your family’s finances, there is no better time than now to develop new habits and get your year off to a running start. These are the necessary steps to take.
Find a Financial Planner. A financial planner will help walk through the whole process. It is important to work with a financial planner who works with people similar to you. Going on the internet and searching names is probably not the most effective way because you never know what you are going to get. Asking for referrals from friends or family is a great way to go. You know the financial planner has done a good job for them, which automatically creates trust and credibility. Remember, there are many options. Speak to a few people and see who would be a good fit for you and your family.
Meet With a Financial Planner. The first step is establishing your financial goals. The financial planner will ask: “What are the financial goals that you want to achieve? What are your dreams?” Without setting goals, it makes it impossible to achieve them. A goal a client may have is, “I want to send my children to school.” So, right away I need to know what that means. Does it mean you’re paying for all their tuition, or just part of it? A client may also say they want to save to purchase a home and need 20% down. Well, what type of home are you looking for, and in what price range? A financial planner will probe and dig deeper to get those answers.
How Do We Get There? Your goals must be written down. When you begin to work towards these goals, budgeting becomes a vital part of this process. As a family, it‘s about sitting down and looking at your monthly cash flows. This is a basic practice that every family and household must to be doing. You need to know what your budget is, to ensure you are not living outside of your means. Which means, you have enough money coming in to pay for the expenses going out. It doesn’t matter if you are a billionaire or if you’re making $20,000 a year on a side job, if you are spending more money than you’re bringing in, you are going to find yourself in debt.
Budgeting is Easier Than You Think. People tend to overcomplicate budgeting. Remember, budgeting is not one-and-done, it needs to be done on a regular ongoing basis. How much you spend on food or utilities varies from month to month, so you want to figure out on average how much you are spending. Once you start the process and go year-over-year, you really understand your spending. The same “average” holds true for how much money you are bringing in, because that might change from month to month depending on your job or career.
Realize Your Debt. When working through budgeting, you will realize your debt. Now, you can work toward paying off your debt, as well as saving money for the future. People say, “I can’t save money, I need to pay off my debt first.” This should not be an all-or-nothing thing; it should be more of a balancing act. You want to be paying off your debt while you are saving for the future, because you don’t want to miss the early earning years in your career. Time is your friend when it comes to saving and investing.
Have an Emergency Fund. If your hot water tank blows up, you need to replace it right away. You want to ensure you have cash immediately on hand, avoiding the I have to use my credit card. Or, if you lost your job, you want to have cash set aside to cover your expenses. If you are in a two-income household, the rule of thumb is to have three months of expenses saved as cash. In a one-income household, you want to have six months’ worth. Many people lost their jobs during the pandemic, and having cash would have helped them to get through. As we’re saving for the future, we want to make sure we’re saving for the emergencies that can happen today. That needs to be a top priority.
Long-Term Saving. We’re saving for our immediate expenses and now we need to be thinking long-term saving for our retirements. This includes saving for our children. If you will be sending them to school, starting a 529 Plan for their college expenses makes sense. Or, if you plan to send them to private school for K-12 education, a 529 Plan can also be used for that. Working with a financial planner on what your goal is for your child’s education and future is as important as working on your investment planning. The sooner you start the better. I’ll get more into detail about 529 Plans in an upcoming article.
Term Insurance. Term insurance is used in case something happens to the primary breadwinner. You want to make sure your spouse is protected. What happens if the breadwinner passes away unexpectedly? Term insurance is great coverage to protect your family financially in those unforeseen situations. Working with your financial planner, and walking through these steps, you’ll know how much coverage needs to be there and for how long to protect your family to be financially secure now and in the future.
As a CERTIFIED FINANCIAL PLANNER™ practitioner and a Certified Personal Finance Counselor® professional with the Weber Group at Hefren-Tillotson, I have outlined these simple steps to protect you, your family, and your future. I stress the need for education because, as a former educator, I believe making informed and educated decisions about one’s financial life is just as important in one’s medical life. If you have concerns about getting your family’s financial future in order, please contact me as I would be glad to help.