8 Steps To Set Up Your Family For Success

September 1, 2021
3 min read
Thomas Kopelman

Life has changed. You went from being all on your own and only responsible for your own needs to being responsible for other people. Now, it’s all about giving the people you love the very best you can.

You want to give them things you never had and allow them to experience things you only dreamed of. The problem is, you are not sure how to do it.

Where do you even start?

It’s extremely common, good parents who want the best for their family but don’t understand how to do that financially. Managing your finances was hard enough when you were on your own. Juggling work, a home, and the never-ending activities that kids decide to join means life is not only more complex, it is also much busier.

Let’s face it, you don’t have tons of excess time for financial strategizing. Here is an in depth resource to help you set up your family for success.

1. Create a Budget

I know we harp on this one a lot, but budgeting is so key to financial success no matter what stage of life you are at. Think of it this way, do you know of any successful business that just goes with flow and doesn’t track revenue and expenses? Of course not! It would never work, and it probably won’t for you either. To be successful, you need to understand inflows and outflows of money in your household.

2. Get Insured

Now that you have people in your life that you are responsible for, you need insurance to protect them. For most people, term life insurance is the best option. It allows you to get the most amount of life insurance for the least amount of dollars. There are a few things to consider when evaluating what the right amount of insurance is for your family: income replacement, debt, college savings, donations, etc.  You can get life insurance either through your employer (the problem is that when you leave your job this does not come with you) or privately through an insurance company.

You also need to consider getting disability insurance. Disability insurance helps protect your income in the case that you are unable to work for whatever reason. Oftentimes disability insurance is neglected, but the truth of the matter is that you are actually significantly more likely to be injured and unable to work than you are to die early. Typically, you should try and get disability insurance through your employer to keep the cost low, but if this is not an option, then you can get your own disability policy outside of work through an insurance company.

3. Build an Emergency Fund

An emergency fund is very important to protect against the inevitable ‘what ifs’ in life. You never really know what can happen. Also, it should help you sleep better at night knowing that you won’t have to turn to debt if something drastic happens.

The general rule of thumb is to have 3-6 months of expenses saved in an emergency fund, but that doesn’t work for everyone. COVID-19 has shown us that crazy things can happen no matter how safe and secure you feel. If you have two working parents, I would suggest a minimum of 3 months of expenses saved. But, if either of the two incomes vary month to month, then shoot for closer to 6 months saved.  If only one parent works, then save 6-9 months of expenses just in case anything happens where that income is no longer there.

Consider having your emergency fund in a high-yield savings account (I prefer Ally Bank), as they typically give the best interest rate while remaining liquid.

4. Pay Off Any Remaining High-Interest Debt

If you have any high-interest debt like credit card debt, pay this off right away. Having debt like this makes life stressful and takes away your freedom. Once this is gone, focus on not adding any more high-interest debt in the future. It is totally fine to use a credit card to build your credit and earn rewards, but make sure you are only spending what you can afford.

5. Save for Retirement

Coordinate with your advisor the right mix between 401(k), ROTH 401(k), IRA, Roth IRA, and many others. Your income, tax situation, company options, etc. all make a huge difference in what makes the most sense for you and your family. If you have a 401(k) through work, at least contribute enough to maximize the employer match.

The key here is to start early and not neglect your retirement. Playing catchup is never fun. Get invested, diversify your investments, continually contribute, and trust the process. Time is on your side.

6. Start a Health Savings Account (HSA)

If you have a high-deductible health insurance plan that qualifies, contribute to an HSA and let it grow. Try to not touch this account for your yearly medical costs if you don’t need to. An HSA is the only triple tax advantaged account (tax deductible, grows tax-free, and can be withdrawn tax-free for medical expenses). The reason to not use this on a yearly basis is because you can invest it and let this account grow overtime and use it in the future. It is a very powerful account!

7. Save for College

Start preparing for college expenses if this is a priority to your family. One approach is using a mix of a 529 plan (for the tax benefits in certain states) and a taxable account. Consult your financial advisor and CPA to figure out the best mix for your family.

8. Start A Taxable Investment Account

To prepare for mid-term and long-term goals (think down payment on house, new cars, college, etc), start a taxable investment account.  The farther out your goal is, the more important it is to invest to plan for it. Inflation can eat away at your dollars if they just sit in cash. However, you might want to leave it in cash if the time horizon for the goal is less than 5 years out. The risk is not worth it to invest with such a short time frame.

At the end of the day, there’s a million different steps you could take to set up your family for success. Just like there’s no perfect way to be a parent, there’s no perfect way to set up your family’s financial plan. Each of these 8 steps involve deeper dialogue to determine what is right for you. This post and infographic are designed to help facilitate a meaningful conversation to make sure you have all your bases covered. Your goals, income, and financial situation all make a big difference when determining what is best for your family.

What’s most important is that you start planning early and stick with it!  

Your family will thank you later.

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.

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