Article by Anthony Christensen
Getting a handle on your family’s money might seem like a daunting task at first. The logistics, details and accounting is sometimes not all that different from running a small business, especially when it comes to things like investments, insurance and retirement planning.
What all families need to keep in mind is that financial planning must be built around an objective. In this respect, family finances are very much like retirement. Plans must be made and then adjusted based on the passage of time, new objectives and any potential situation-changing events like selling a home or a new child. The plans for different families might be similar, but their objectives might be quite different.
Like retirement, family financial plans are subject to the time available to execute them. For example, you know your children will start incurring college expenses within 12 months of their high school graduation. For young parents, this provides them room for long term plans like regular contributions and tax advantaged investments. For parents of older kids, the strategy is no longer accumulation but allocation into the right vehicles for growth and reduced risk.
Families have enormous advantages when it comes to taxes. Every possible avenue available to reduce tax liability should be fully exploited so as to make the maximum amount available for long-term objectives like education and retirement. In fact, many long-term objectives have tax-advantaged options which can be utilized from day one. These should be a high priority as early as possible, since their cumulative effects will be amplified considerably by the time the funds are needed.
Like taxes, insurance is a continuous expense. For families, there are many categories of insurance, none of which can be safely overlooked. Overpaying for insurance can do the same damage as overpaying taxes. When combined with the opportunity costs of having less to invest, insurance premiums that are too high can be a huge burden on a growing family. It is for this reason your family’s insurance plans should be re-evaluated at least once a year. Make certain your deductibles are manageable and that you aren’t carrying coverage you don’t need.
In an entrepreneurial age where passive income is relatively common among the highly motivated, putting together one or more “side-hustles” is often an effective way to increase income and accelerate your accumulation of retirement and college funding. Trading is a natural fit for many, as their investments are at the core of their retirement and educational strategies. Firms like Maverick Trading are a great way to start. It is a good idea to consult with an experienced accountant in advance, as some kinds of trading can be risky without expert advice.
You’ll need to keep in mind the fact many of these extra-income businesses come with significant ongoing expenses and tax considerations, but if you are prudent and plan well, you could very easily build a nice line of side investments and give yourself an insurance policy against interruptions in your main source of income.
It is often a good idea to leave the formal planning to someone with the experience and training to know where you stand and how to get to where you want to be. Nearly every state has a qualification process for certified financial planners. Stockbrokers and certain kinds of insurance agents can also be good guides for preparing a plan. Give them the details and let them come up with a priority list. Very often your advisors will think of things you simply never would have imagined would matter. Any money spent here should produce worthwhile returns.
Financial planning is far too important to overlook. Procrastinating or hurrying through the details will only hurt your objectives and make it more difficult for you to achieve the security your family deserves. Take the extra time, get it right, and enjoy the benefits.