Personal financial planning is a challenging task for anyone, and when your family grows, it just gets more complex. Family finances have to take into account the various needs of each member if the budget is going to stretch to make sure everything is covered, meaning that you will need to adjust the plan regularly as the family grows and ages. No matter what, though, there are still basics that everyone needs to cover, it’s just that how they work and how you balance your resources between them will change over time.
Personal finance is generally broken down into six areas:
- Financial position, a.k.a. available resources and income
- Risk management and protection
- Tax Planning
- Investment goals
- Estate Planning
No matter how big or small, young or old, your family will need to have a plan that involves all of these areas. For parents with really young children, you might de-emphasize retirement in favor of general investments so that you can have funds available for education or asset purchases, or you might focus the estate planning on guardianship for the kids. As your family ages, though, expenses like weddings, vehicles, college, and more will require you to plan in advance to cover each area.
Out of all the areas involved in financial planning, risk management is the most often overlooked, and it’s also the first one that most people cut back on. This happens for a few reasons. It’s easy to talk yourself out of insurance, or out of the right level of insurance, when finances tighten. It’s also easy to overlook vital areas of coverage or to mis-estimate their importance.
For example, many people overlook wage replacement insurance in their personal coverage, even when they have an otherwise comprehensive personal insurance program, which means that while their property and their medical expenses are covered in an emergency, their income is not. In the event of a long recovery time, this can lead to a significant amount of instability for a household. If this sounds like an oversight you might have made, then it’s time to speak to a local insurance agent and discuss new policies.
Taxes, Investments, and Retirement
These areas are the ones most prone to change over time, and they are the most interrelated. Consulting with a personal financial planner, investment advisor, or other accounting professionals can help you to keep them in balance with each other. This is important because the line between dedicated retirement investments and general investments tends involves a sharp divide in taxation, but retirement funds are harder to use for other purposes, so most people seek advice in this area.
This area will also change substantially throughout your life as your assets grow and any children in your household reach adulthood. Revisiting estate planning every couple of years will keep you on the right track, and it can help with risk management and other key planning areas as well.
Putting it all Together
As your financial position changes over time, you will find yourself with waxing and waning resources for each area you want to cover. This makes risk management and investment the two most vital areas during your early years, because you will need your assets and investments to grow as your family grows, and you will want to be protected against possible setbacks. Make sure to strike the right balance when you set up your family’s plan.