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How to create a financial plan for your family

Whether you’ve recently started a family or have seasoned experience in parenthood, it’s never too late to consider family financial planning.

Happy Chinese Family

For dynamic wealth-building, both personal and family financial planning must be balanced. Personal goals such as planning for retirement, investing in a business, or home ownership should be separated from the list of needs for the family. Needs for the family includes but isn’t limited to, university fees, disbursement of insurance and estate planning.

Whether you’ve recently started a family or have seasoned experience in parenthood, it’s never too late to consider family financial planning. Outlining the larger goals of your finances as a family unit opens an opportunity for generational wealth creation. 

As mentioned in a previous article, the three steps of securing your family’s finances include quality education, an emergency fund, and a robust long-term investment plan.

 

Family financial planning guide: How to create a financial plan for your family 

There isn’t an “ideal” time to start family financial planning, in fact, you should do it as soon as you can. It is important to note that family financial planning management should be a collaborative effort that prioritises input from all members of the household to truly understand everyone’s needs.

 

Family budget planning

To begin family budget planning, the first step is to list down the total earnings of the household. Single-income and double-income families will have different funds, and hence different allocations and budgets set aside. Some instances will also see those with dual income streams having more to pay as they might opt for a second car, travel more, and spending for child-caring services such as day-care centres as both parents will be at work.

Though the range of earnings between households differ, the usual expenditure categories are almost similar. Necessities such as education, food and transport will be included in a family monthly budget. However, how you choose to spend for each category differs. For example, cooking at home versus ordering in, private school versus public school and the offset costs of public transport or owning a car. 

 

Setting up family financial goals

The main priorities of most families are tertiary education, wealth creation and paying off debt. Some of the most common mistakes in planning these goals are taking on too much debt, narrow investment portfolios and parents confusing personal and family financial goals.

Meeting with financial advisors allows families to explore the options available to them. For money-savvy parents, using the different packages built for the different stages of your career prevents unnecessary risk for financial planning. In your early 20s, you may prefer a more aggressive strategy for savings as your income is enough to sustain your expenditure and flexible enough for you to have diverse investments. As you progress in life, safeguarding the future of your family with lower risk investments which have steady profits may be the preferred option.

 

Example of a family financial plan

Executing a financial plan for your family requires both complete honesty and transparent communication from both partners. An accurate tabulation of wealth and debt have to be listed for easier planning.

 

Young families

Financial planning for young families is usually more extensive and may feel daunting as this is the first time you are deciding with someone other than yourself on a budget to set for monthly expenses, housing, family planning goals and childcare costs. Couples should discuss the prospect of combined finances in an emergency fund as well as a joint account for shared expenses prior to settling down for a to align financial goals and expectations. Being accountable to your partner and your family means being honest about spending habits and focused savings goals for the future. Manulife understands the concerns and provides financial advice for young families, with consultation available for long-term planning as well.

 

Education funds for children

One of the top priorities for young parents are education funds for their children. Choosing which range of education is worth the money becomes a choice that begins since the child is born. Even before entering primary school, there is a wide range of enrichment classes and private tutoring already available. Parents are sometimes pressured to decide what quality of education they can provide their children due to peer pressure and may end up enrolling for a school that’s out of their budget.

Putting aside money for tertiary education is the main concern for most, with university fees increasing over time – especially if they wish to send their children abroad. Such education funds have been set up since young in case scholarships and staggered loan payments are not available options in the future. 

 

Retirement planning 

It is never too early to think about retirement planning. As a parent, it is your responsibility to educate your children on financial planning and savings so they are aware from young. While some may ‘invest’ in their children as a retirement plan, placing that responsibility on them to pay for your healthcare and retirement spendings will impede their personal growth. Especially in the early stages of their career, where they are just starting out, with low salary but having to juggle student debt and living expenses. 

That can be avoided with practical family financial planning where the needs of both the parents and the children can be achieved simultaneously. Long-term investments for personal financial goals may coincide with family financial planning. For example, owning a house to pass down to children may be useful as either a home to live in or an option to rent it out for rental funds in the future. Parents who discuss their finances openly with their children can also prepare their children in advance and chart out finances together.

As parents enter their golden years, they should consider life and disability insurance. The likelihood of disease increases over time, and that will incur additional costs. However, that worry can be taken care off with the assurance of insurance.

No matter what stage of life you are in, the need for family financial planning prevails. By being pragmatic and open about finances, families can build greater understanding of personal wealth and at the same time reduce unforeseen financial crises. As a parent, being the caretakers of your children’s future includes securing your own, so you can enjoy your latter years.

Budget - Family of four

Per Month

(MYR)

Percentage of

Pay (%)

Per Annum

(MYR)

 

Salary — Single-income earner 5,000   60,000
Expenses      
Rent 1,250 25 15,000
Groceries/Food/Water 1,000 20 12,000
Utilities — Electricity, Mobile, Astro 250 5 3,000
Petrol 250 5 3,000
Car loan 500 10 6,000
Education Fund 375 7.5 4,500
Medical Insurance 375 7.5 4,500
Entertainment 500 10 6,000
Total Expenses      
Savings = (Income - Expenses) 500 10 6,000

Budget - Family of four

Per Month

(MYR)

Percentage of

Pay (%)

Per Annum

(MYR)

Salary — Double-income earner
9,000   108,000
Expenses      
Rent 1,600 17.8 19,200
Groceries/Food/Water 1,500 16.7 18,000
Childcare 1,500 16.7 18,000
Utilities — Electricity, Mobile, Astro 350 3.9 4,200
Petrol 500 5.6 6,000
Car Loan 1,000 11.1 12,000
Education Fund 375 4.1 4,500
Medical Insurance 750 8.3 9,000
Entertainment 425 4.7 5,100
Total Expenses      
Savings = (Income - Expenses) 1,000 11.1 12,000

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