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The Importance of a Family Financial Plan

0 Comments 08 November 2011

If you’re like 99% of the people in this world, you often think about how you are going to pay for your children’s education and how you are going to survive financially in your “golden years”. In today’s economy, however, it’s difficult enough to make things meet from day to day without worrying about planning for the future. Yet, the concern is always there in the background. Therefore, it is important that every family create a financial plan to serve as a guide and a goal for a secure financial future.

Planning Factors

There are five primary concerns of a good financial plan for a young family: a secure home, family medical coverage, retirement planning, the children’s education, and life insurance on the life of the bread winner. All the rest is routine day to day living.

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Saving

Obviously, the five major components of the family’s financial plan will come at a cost. All will require a regular investment. This investment must be included in the budget along with the routine day to day living expenses. Begin with the savings habit. Even before you have developed a financial plan, open a savings account dedicated to that purpose. Commit a specific amount each week to that savings account. Initially, the amount saved is unimportant. It’s the saving habit that needs to be developed. Begin with five percent of your take home pay. Deposit it religiously, and don’t touch it. Remove funds from this savings account only to contribute directly to any of the five major components of your financial plan. Once the habit becomes ingrained, the amount saved can be increased as income levels rise.

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The Secure Home

The main component of the great American dream is the home. Owning a home is usually more economical than renting property. You have the security of ownership, and a sense of permanence. Unfortunately, home ownership requires a sizable initial investment. If you must rent in the beginning, find the best rental property for the least financial outlay. Continue to contribute to your savings until you have enough money to finance that first home.

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Family Medical Insurance

Nothing can deplete a savings account faster than emergency medical care for a family member. One weekend in the hospital can clean out a young family’s savings account. A child born with a congenital defect can drain financial resources for a lifetime. Make a concerted effort to find affordable medical coverage for the family and include the expense as a priority in your day to day budgeting. It will be cost effective in the long run.

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Bread Winner Life Insurance

Death of the family’s primary bread winner cancels all financial hopes if there is no life insurance on the bread winner to replace his lost income. It’s a cold and brutal fact, and one that is difficult to face, but adequate life insurance can ensure that a family’s hopes can be attained even though the bread winner has passed on. Don’t waste resources on whole life insurance. Buy a low cost term policy and keep it until your children are self sufficient.

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Educating the Children

Your long term financial plan must include education for your children. It may be simply to provide for learning and becoming licensed in a trade. Regardless of the educational goal, achieving it will cost money. One can hope for an athletic scholarship, but that should not be the family’s only solution. Save regularly for tuition costs. Each state has a savings plan tailored to ensuring educational funds at a certain age.

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Retirement

For the struggling family, saving for retirement is the last concern to be addressed. Usually, it’s addressed too late in life to make a significant difference. Social security is basic, and will not permit you to maintain the lifestyle that you’ve developed over your working life. When possible consider long term investments early in your life. Even a small regular contribution to a mutual fund, an IRA, or a 401K plan can make a great difference in you later retirement.

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Prepare for the Long Haul

Preparing for a secure future is difficult and requires great discipline. Many have done it, and many others have failed. Those who succeed practice thrift, shop wisely, and save regularly. Eat at home, not at a fast food joint. You’ll save money and eat better foods. Budget your out-of-home entertainment. Focus on spending your limited income on those things that you definitely need, not on those things that you simply want. Don’t try to keep up with the Joneses. If you’re smart and disciplined in following your financial plan, the Joneses will one day be trying to keep up with you.

Amy Brown is an editor of Livesnet.com, a site offering baby gear reviews and tips on problems parents encounter in daily life. She’s surely willing to share her own experience and tips. Please visit Livesnet and read her recent reviews on Britax Roundabout Convertible Car Seat and First Years Wave Stroller.

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