Financial life planning in NYC is particularly important for those individuals who have or plan to have children. While financial planning is important for everyone, the level of responsibility changes once you have children. Unfortunately, many parents miss the opportunity to have financial life planning establish the necessary goals to protect their finances down the line. It can be easy to get caught up in the everyday activities of being a parent. However, financial life planning is an integral part of building a financially secure future.
Financial Life Planning Step One: Know Your Situation
The first step in life planning for families is to understand where you currently stand. This means taking a hard look at your finances to truly understand how much income is received, where the money is being spent and a family’s savings. Financial life planning begins here because it is hard to know where you want to go when you don’t have a full understanding of where you are.
- Income: Add up your take-home income from all sources for the month. Your income represents how much money your family can spend without incurring debt.
- Expenses: This should be the total of all of your family’s expenditures during the month. This number should include regular bills, such as rent and utilities, as well as funds spent on entertainment and clothing.
- Cash Flow: Your family’s cash flow represents how money is moving through your home. If your cash flow is negative, you are spending more money than you are bringing in. This situation can quickly result in taking on additional debt or being unable to meet obligations.
- Assets: Your assets include anything of real value. When considering your assets, make sure to include the market value of your home and car as well as the balance in your bank accounts.
- Debts: Your debts are made of every dollar that you owe a third party. Common debts for families include student loans, car loans, credit card balances and personal loans.
- Net Worth: Your family’s net worth subtracts your total debt from your total assets. Many families that are just starting out will have a negative net worth. This trend is particularly true for families with large amounts of student loan debt.
Financial Life Planning Step Two: Set Goals
Now that you’ve identified where your family’s finances currently stand, it is easier to determine where you want to be. It is important to involve the entire family in the goal setting process. Children may have their own financial goals that you may not have thought of previously. Furthermore, by getting your children involved up front, you have a greater chance of them buying into the family’s new budget.
The goals you set should be realistic based on your financial standing, measurable and specific. Next, assign a dollar value to each financial goal as well as schedule a required completion date. Goals should be both short-term and long-term so the dates will be varied.
In some instances one goal will need to be completed before another can begin. In other cases two goals will run concurrently. Although each family will have a list that is unique to their needs, there are several common goals:
- Paying off debt.
- Saving for college.
- Saving for retirement.
- Establishing an emergency fund.
- Buying a house.
- Purchasing life insurance.
Financial Planning Step Three: Create a Plan
You know where you are financially. You know where you want to be financially. The third step is deciding how you will get there. The budget you created in step one will help with the creation of a plan to meet your financial goals. Review your income and expenses in order to determine if you are able to fund your goals without making any changes. If that is the case, you’re very prepared for achieving your financial goals. However, the vast majority of individuals will need to make adjustments to their way of life in order to achieve their goals. Cash flow for investing may be increased by:
- Reducing expenses.
- Increasing income.
- Making a lifestyle change to adjust family priorities.
Involving the entire family with the plan creation is important. By involving the entire family, you’re again getting the buy-in of your children who will also need to make lifestyle changes.
Financial Planning Step Four: Make Adjustments
Financial life planning in NYC does not stop with the creation of your family’s action plan. The planning process should be ongoing and adjusted as needed to address life changes. Specific times to review your financial life plan include:
- Large changes in income or expenses.
- Changes in career paths or roles.
- Before starting a family.
- After having children.
- When you purchase a home.
Adjustments are an important step to ensure your financial plan is relevant for where you are in life. Continuing to involve the family in the process teaches your children solid financial planning skills. Additionally, updating the family’s plan helps to verify that your children’s financial needs are being heard – even if they end up being the independent goals of your children.
Financial Planning Step Five: Retirement
The goal of financial planning is to provide a source of income for your family during retirement. However, retiring is not the end of the planning process. During retirement you should continue to monitor your budget as well as the performance of your investments. Be sure to regularly review the risk profile of your investments. During retirement, the focus should be on protecting wealth, not achieving additional wealth through risky investments.
This is also a good time to think about and begin estate planning. Estate planning should not wait until an individual is ill or has concerns about the future. By sitting down early, you are able to create an estate plan that is reflective of your desires and provides protection for your wealth. If you do not have an estate plan in place, your estate will be subject to additional taxation. Furthermore, not having a clearly documented plan in place can cause stress in family relationships.
The services of a qualified and experienced certified financial planner are useful at all stages of the financial life planning process.
