Family Financial Planning

Have you ever figured out how much money you will make in your lifetime? Looking at the total numbers can be both exciting and sobering. If you are 25 and make $40,000 a year, by the time you are 65, you could have earned over 1.6 million dollars–and that’s assuming you never get a raise. That’s quite a fortune.

But where does it all go? As you were growing up, your parents probably reminded you that “money doesn’t grow on trees”. As you have entered the working world, you probably understand that better now. But money can still seem to have a life of its own.

Family financial planning is not just about cutting coupons and denying yourself treats. It takes serious, careful thought and preparation, but the benefits are well worth the time and effort. The steps are simple.

Start Fresh
Before you can move ahead, you have to get yourself back to the starting line. Get rid of your debt. Once that hole is filled, you can really start to save money for the future. To get out of debt, you’ve got to start living off of what you can earn—not what you can borrow.

Credit card debt is a huge thorn in anyone’s side. Credit cards are a slippery slope, and though they can be handy in emergencies, they make spending money a little too easy. If you only pay the minimum payment each month on a $3,000.00 balance, it will take over 20 years to pay off, and you could pay over $4,000 in interest.

Luckily, getting out of debt is easier than you think. First, promise yourself that you’ll stop charging. Next, figure out how much you can comfortably spend every month in debt payments. Make it a reasonable number that you can stick to, but make it significantly higher than the minimum payments. Even paying $100 more per month on your payments can help out a LOT more than you think.

One last tip: Don’t send every penny you have to the credit card company in frustration. You’ll only end up with no cash when the electric bill comes in, and you’ll be forced to break your promise to yourself and start charging again.

Write it Down
It’s not unusual for a family not to be able to account for 10% or even 20% of their annual expenses. Make a comprehensive list and figure out where the money is going. Determine both how much you’ll spend annually and how much you intend to spend over your working lifetime. You can use the worksheet on the following page as a starting point.

You may be surprised to find out that you don’t know how much you’re spending on a lot of categories. Write down everything you spend for three months–yes, even that 50¢ Coke from the vending machine—and you’ll start to get some real averages.

Here are some categories to look at for savings:

Home
Rent or Mortgage
Home Insurance
Home Maintenance
Property Taxes

Utilities
Electricity
Telephone
Water
Garbage Pickup
Homeowner/Condo Fees
Internet Connection
Natural Gas
Cable TV

Food
Groceries
Dining Out
Take Out

Transportation
Car Loan
Car insurance
Gas
Parking
Car Maintenance & Repairs
Subway, Tolls & Bus
Registration & Inspection

Personal Care
Hair Cuts
Manicures/Pedicures
Dry Cleaning
Gym Memberships

Children & Education
Educational Loans
Daycare or Private School
School Supplies
School Fees
Baby Supplies

Entertainment
Renting or Going to Movies
Family Outings
Entertaining
Tobacco
Alcohol
Vacations

Pets
Pet Grooming
Pet Boarding
Pet Medical
Pet Food

Services
Housekeeper
Gardner/Mower
Babysitter

Medical
Dentist
Physician
Eye Care
Prescriptions
Emergencies
Medical Insurance
Life & Disability Insurance

Consumer Items
Magazines & Subscriptions (online game subscriptions, etc.)
Other Memberships
(ballet classes, season tickets, club dues)
Books
Hobby Expenses
Tapes & CDs
Clothes
Furniture/Household
Computers and Home Office
Toys & Games
Gifts
Christmas Expenditures
Other

Other Expenses
Other Loans
Credit Card Payments
Child Support
Late fees, bank charges, etc.
Charity
Alimony
Income Tax

Savings
Retirement Savings
Emergency Savings
Investments

Establish Goals
The vast majority of families would like to be better off, but have no specific goals. And no, “I’d like to be rich,” doesn’t count as a specific goal. Sit down with your significant other and talk it over. Where do we want to be in ten years, and how do we get there?

Make your goals specific and attainable. Know your rewards for cutting spending. If you decide to give up take-out food, cable TV and morning coffee at your favorite café, figure out how much you can save and what you’re going to do with the money. Will you save up to go to school again? Would you like to get a bigger house? Do you want to be able to retire earlier?

Calculate it out: How much money do you need to meet your goals, and how can you get it.

Save and Invest
Determine a set amount that you are going to set away each month and treat it like a bill. To start with, you’ll probably want to put your money in a savings account. But as your savings grows, you’ll want to start to use that money to make more money.

There are dozens of safe ways for you to invest your money and earn more interest than you will in basic savings. Here are a few you can look into:

• CD’s
• Mutual Funds
• Bonds
• Money Market Accounts
• IRAs
• Treasury Bills and Notes

At Sec.gov, you can use the search function to find clear definitions of different types of accounts. And at Bankrate.com you can compare interest rates offered by banks in your area for basic savings, CD’s, mutual funds and more.

Educate Yourself
In the end, proper financial planning requires educated decisions. Don’t just blindly earn and spend. Pay attention to where your money goes. Household budgets, careful spending, savings, investments, and credit card control are only part of it. Not everyone likes dealing with financial aspects of their lives, but in the end, it’s worth it to bite the bullet, crunch the numbers, and learn how to handle the fortune you earn.