The Most Important Facts About Family Financial Planning
Saturday, June 1, 2019, 6:00 AM | Leave Comment
According to Maggie McGrath at Forbes.com, 63 percent of Americans don’t have the savings to cover a $500 emergency expense. That’s the cost of a brake job, a new stove, or an air conditioner repair.
What’s worse, many households still don’t set up a budget, they mostly scrawl the figures out on scrap paper or mentally keep track of numbers. So, Americans do budget for expenses; we just don’t seem to be too serious about it.
The household budget needs to be the cornerstone of any family financial plan. It’s where you see how your money is working for you, where you see every cent that comes in and where every cent is going out. It holds the family accountable for all of its spending, from the monthly mortgage payment all the way down to the cost of the gas that gets put into the lawn mower.
In addition to the budget, there are other aspects of a family’s finances that figure in to their financial health: What is their net worth? How much life insurance do they carry? What are they teaching their children about responsible personal financial management? Each one of those is an integral piece of a family’s finances.
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Net Worth
Even before you start on your formal family budget (and not just something scrawled on a dinner napkin), you need to determine your family’s net worth, which is simply what you own minus what you owe. You figure in the market value of your home, the amount of cash you have on hand in checking and savings, the amount you have in retirement savings, the estimated value of items in your home, and the cash value of your life insurance (more about that later). From that, you subtract liabilities such as credit card balances, the balance on your mortgage and car loans, student loan balances, and more. In short, everything that you still owe. Once you get your net worth, you then use your family budget to increase your assets (what you own) and decrease your liabilities (what you owe).
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Insurance
You want to make sure that your family can continue their way of life if something should happen to you. Life insurance, of course, can make that happen. You can select term insurance, which is where you simply pay a monthly premium for an amount of coverage. If you opt to go this route, make sure you learn all there is to know about term life insurance — including options for length of coverage — and provide the necessary information about your current situation in order to attain an accurate quote.
Another option is a whole- or universal-life policy, where the premium is more expensive but only because part of your premium gets set aside into savings. Cash value builds up over time, which you can borrow against. When you retire, you can cash out the policy if you wish so you can free up funds for medical or living expenses. Learn about the process and requirements for selling a life insurance policy here.
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Teaching Your Children the Value of Money
When your children see you and your spouse become financially accountable, they learn more about the value of money. In fact, Kiplinger Personal Finance states that it encourages good money habits, such as saving. All of your children can be involved in some way. You can involve your older children in helping make the family budget or even let them help make monthly bill payments. You can also let the children have a say in financial decisions the family makes together, such as where to go on vacation or the name of a charity to support.
Overall, then, the simple task of sitting down to first figure out the family budget can have an impact on your kids. Once you determine the family net worth, what kind of insurance you should carry, and how you’re going to make sure your children carry on the financial skills you teach them, your family finances will be on their way to being in great shape.
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