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Financial Planning: 7 Essentials for Young Families
Financial security is hard to come by these days. According to AARP, nearly half of Americans aged 55+ are nearing retirement without savings. Moreover, many now depend on credit cards for living expenses. If you’d like to avoid being in the same boat and, indeed, secure a safe, comfortable life for your family, then you need a solid financial plan.
A good financial plan addresses both your present and future needs, ensuring you always have enough. Ideally, you want to create and begin executing your plan as early as possible, while you’re still young. Money requires time to grow. It will also multiply if you play your cards right. Some work and delayed gratification now will pay off in the long run.
Below, Dividend & Whisky offers 7 tips on financial planning for young families:
Goal-setting: Short-term, medium-term, and long-term
A good financial plan is a series of steps you intend to take toward financial stability. You should set concrete, realistic goals and start working on them immediately. Use your desires and vision for the future as guidelines. Consider your earnings, earning potential, needs, and the state of the economy too. Last but not least, be willing to adjust and improve on-the-fly.
Here are some examples of goals you should set:
- Short-term: Monthly expenses (budgeting), insurance coverage, debt management, and saving up for emergencies.
- Medium-term goals: Vacations, weddings, home renovations, cars, and investment portfolios.
- Long-term goals: Homes, retirement funds, medical planning, and college.
In the US, the government helps you save for retirement with two sponsored programs: Social Security and Medicare. Unfortunately, the money won’t replace your income and may not be enough to live comfortably. You need your savings: You should aim to have about 70 per cent of your current salary every month, at least.
Buying a home
Owning a house is a primary – and expensive – financial goal. Even with a mortgage, you need to pay a portion of the price – the down payment – out of your own pocket. Then there are other miscellaneous expenses: closing costs, moving, furniture, and the like. While you could purchase a home without a down payment, you’ll get a better interest rate and low mortgage payments with a down payment. The majority of lends will want at least 5 percent, though it will depend on the loan type. Research home prices in your desired neighbourhood to get started.
Saving for college
If you’d like your child to attend college, you can expect to pay $6,500 a year, on average, just for the tuition. Accommodation, food, and other living expenses are extra. While student loans are an option, you likely don’t want that for your child. It’s quite expensive; it’s a major crisis.
Emergency or rainy day funds
Life rarely goes to plan. When things go wrong, it’s good to have savings to draw on. The Balance points out that you should aim to have about 3 to 6 months of living expenses set aside in your emergency fund. That way, you’ll always have time to get back on your feet. A smaller rainy day fund for unforeseen expenses – paying for entertaining guests or fixing a broken lawnmower – may also be a good idea.
Debt asks a lot from you, in terms of money and energy, and contributes greatly to your stress levels. Some debt may be unavoidable – but you can always manage and mitigate it:
- Have a debt-repayment strategy
- Avoiding credit card use
- Don’t buy it unless you can afford two or three
- Living within or below your means
What happens to your family if you’re taken out of action? Estate planning can help you take care of them. According to an Investopedia report, every estate plan should include a will, power of attorney, beneficiaries, letter of intent, healthcare power of attorney, and guardianship designations. You may also want to consider life insurance.
As you can probably tell, a lot goes into a financial plan, and that includes your investment portfolio. It also significantly influences your life and lifestyle. It can be overwhelming and daunting – but you don’t have to do it alone. Dividend & Whisky can help you come up with a tailored roadmap that considers your unique situation and allows you to achieve your dreams.
A good financial plan will see you through sunshine or rain. Knowing you’re prepared and have enough saved up also greatly reduces your stress levels and contributes to your peace of mind. You will never have to worry about it all.
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