A Financial Planning Checklist For Young Families
As a Young Family, there’s SO MUCH to think about. You want to enjoy today without sabotaging tomorrow and find that balance between the two without falling into any “financial potholes” along the way.
This list will help you get there.
Young families have a lot to think about financially. It can feel overwhelming initially, but when you break it down into bite sized pieces that can be tackled over time, it’s all very much achievable. Whether you already started a family or are recently married, having a handy financial checklist can help you understand how to maximize your savings and reach your financial goals.
A Financial Planning Checklist for Young Families
With those steps out of the way, let’s focus on the financial planning checklist so you and your partner can get on the right financial path.
1. Communicate
Creating a financial plan for your family is a loaded discussion. This isn’t just about money, but each of your life visions, it often involves compromise. Compromise can be tough, and it’s made tougher when spouses have different money mindsets due to different upbringing around money, life experiences with money, etc. Having differences is normal as long as you have common goals. By building a strong partnership you will pursue your common goals while finding a middle ground for your differences. For couples who struggle to discuss money, working with a financial planner can create a safe space to have difficult conversations around money. While financial planning is not couples therapy, clients often experience similar benefits (objectivity, safe space to talk openly about taboo topics, emotions around money, life goals, etc).
2. Set Financial Goals (i.e. Guesses), then Build the Right Habits
Once you and your spouse have communicated (learn each other’s money mindset, triggers with money, upbringing around money), and feel on the same page with your life visions, take time to agree on specific financial goals (i.e. buy a $600,000 home in this area, 10% down, by this time next year). Once those goals are written down, prioritize them in a list. Also, take time to explore what your life visions look like. Does one person want to retire early, change jobs, while the other never wants to stop working?
Does goal setting & prioritizing seem intimidating? Well it is harder than it seems but don’t worry, goals are guesses. Life changes and so will you, but taking a guess starts us off in the right general direction that we can refine with time. Once all your short and long term goals are set, determine the proper actions needed to bring these goals to life, then practice the right habits consistently over time to get you there.
Great things are accomplished through healthy consistent habits over time, no “overnight success stories” here, planning is a process, not an event.
3. Create A Budget
Think how important the spine is to the human body, that’s what the budget is to your finances, it’s the backbone of your financial plan. Options for creating a budget include:
An excel template (send me a message and I’ll provide one to you for free)
Track spending on an app like www.Mint.com or www.YNAB.com
Notebook Paper
Creating a budget is a behavioral challenge. I would rather you create a brief chicken scratch budget on a napkin (so you’re at least thinking about your spending) than not have one at all. Creating and updating a budget keeps you more conscious of your spending. Plus, when you know what you spend approximately each year, ONLY THEN can truly start planning for your future.
4. Decide How To Manage Shared Money
Consider how you would like to manage shared money with your spouse. Some may wish to keep entirely separate finances, others have everything commingled into joint accounts you both use, while others may have a joint account for joint expenses then separate accounts for their own personal separate spending. Creating a system for your bank accounts and how to manage both your incomes makes managing your finances together a more frictionless process. In addition to this, be sure to set aside 3-6 months of living expenses for an emergency fund so you’re covered if/when disaster strikes.
5. Create a debt payoff plan
Together create a plan to pay off high interest debt (i.e. credit cards) as quickly as possible. If you have lower interest debt (say, less than 5%), consider retaining that debt as the cost of borrowing is not egregious. However, some might benefit emotionally/mentally from being completely debt free, if this is you, create a plan to payoff the debt entirely as long as it doesn’t detract from other goals (like saving for a home) too heavily. You may also consider consolidating your debt into one loan, whether a personal loan or a home equity loan. This could minimize your monthly payments and allow you to focus your funds on just one loan, one debt payment (simplicity).
6. Decide if you’ll own or rent a home
Just because you’re married with a family doesn’t mean you’re obligated to own a home. Together decide what’s best for you. For example, if housing costs in your area are too high, you might be better off renting. However, some couples prefer to own a home, so they earn the equity in it to build their net worth.
Remember, owning a home can be more expensive than meets the eye.
7. Invest Early & Often
At the very least, ensure you take full advantage of your employer match, think of this as a guaranteed 100% return. The earlier you invest your money, the more time your money has to compound and grow.
Remember: Slow and steady wins the race. Consider diversified low cost mutual funds and ETF’s that grow slowly over time rather than trying to hit it big with the next “Tesla” stock. Also, keep the risk tolerance of you and your spouse in mind when choosing how much risk to take with your investments.
8. Invest Idle Cash
Think of every dollar as a little soldier, whose job it is to create more soldiers. You want to put every soldier you have to work. One common issue I have seen amongst some of my clients is holding a significant amount of cash in their bank & investment accounts. The way I explain it is that most millennials are conservative investors. Many of them observed their parents’ negative experience during the financial crisis of 2008 and 2009. As a result, they became more risk-averse than their parents. Keeping excessive cash feels safe but you’re actually losing money due to the effects of inflation. Get that money invested then leave it alone (don’t try to time the market) and let it grow slowly over time.
9. Create An Estate Plan, Get Adequately Insured
An estate plan may not seem like a high priority for young families in their 20’s, 30’s, or 40’s, especially if you don’t have assets, right? I would rethink that. The unexpected happens all the time and you want to make sure your family isn’t left with an “estate planning nightmare” should you pass unexpectedly. These situations can and do happen all the time, you should be prepared for them. See here for a checklist of estate documents you’ll need to help ensure your loves ones are covered should you pass early.
10. Consider a 529 Savings Plan
If you have kids, consider saving for college now. Even if your children are still babies, the earlier you save, the more tax savings you could get from a 529 savings plan. These accounts grow tax-free and are withdrawn tax-free if used for qualified education expenses (i.e. expenses for K – 12 education & college). A best practice might be to contribute early and reserve those funds for college as the tax advantages are larger the more time you give the account to grow and compound.
Final Thoughts
This financial checklist can get young families started in the right direction. Financial planning is an ongoing process (not a one-time event) that requires you to communicate, adjust, and celebrate when you reach your financial milestones. Of course, as life changes, so will your personal finances, but for now, this checklist can get you started.
If navigating how to approach your finances as a married couple or young family is important to you... Schedule a free 30 minute introductory call with me here. A financial planner can help you build better financial habits, help get you and your spouse on the same page, explore both of your money mindsets so you understand one another better, and create a holistic financial plan that incorporates both of your values, goals, and priorities with money all into one place (as well as all the other key areas of your financial life).
Together we can explore “you” in a way that’s deeper than dollars and cents, and start a conversation to get you and your partner on the same page financially. I’m here to help you create a vision for your life, then back into the money moves needed to bring that vision to life. You can live for an epic life today, while still being on track for tomorrow.
Jonathan Grannick, CFP®
Wonder Wealth LLC
San Diego Financial Advisor | Fee-only Fiduciary
Disclosure:
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