How to Build a Family Financial Plan
Financial planning is an essential aspect of managing one’s finances and ensuring long-term financial stability.
When one is thinking of starting a family, it is important to create a comprehensive family financial plan that involves setting financial goals, budgeting, managing debt, and planning for future expenses. In this article, we will discuss the key elements of building a family financial plan and provide tips on how families can enhance their financial security and stability.
How to Build a Financial Plan
1. Set financial goals
Setting financial goals helps create a clear vision of what you want to achieve. It helps to break down the goals into short-term (1 month, 3 months, 6 months, 1 year) and long-term goals (3 years, 5 years, 10 years). Defining your goals helps you prioritise your spending and make informed financial decisions. By setting specific, measurable, achievable, and time-bound goals, you are able to break down your financial objectives into manageable tasks, making it easier to be consistent and track your progress. Continuously hitting smaller goals that lead to a larger target keeps you motivated and focused.
2. Budget
To budget your spending, you need to begin by outlining your income, expenses and debt. Expenses can be categorised into two types: discretionary and necessary expenses. Discretionary expenses include entertainment, shopping, vacations and other non-essential items, while necessary expenses include food, shelter, transportation and other essential needs.
To create a realistic budget, you need to split your income between necessary expenses (50%), discretionary expenses (30%), and savings (20%). You may reward yourself monthly for sticking to your budget to keep you motivated. Do note that budgets should be flexible and updated regularly. Life changes, and your budget should change with it. By creating a budget and tracking your spending, you are one step closer to achieving your financial goals.
3. Debt Payment
Debt repayment is the process of paying off outstanding debts and is a crucial aspect of family financial planning. Young adults may have several types of debt, including student loans, credit card loans, car loans and personal loans. High levels of debt may limit a person’s ability to achieve their goals and create financial stress.
Create a realistic plan that calculates how much money needs to be put aside monthly in your budget and how long it will take to pay off the debt. If you are unsure of where to start, seek out a financial advisor. Prioritising debt repayment can reduce financial stress, improve credit score and increase ability to save for the future.
4. Other types of planning
Building a comprehensive family financial plan should include retirement, college, estate planning and insurance. Retirement planning in Malaysia typically involves contributing to the Employees Provident Fund (EPF) and supplementing it with additional retirement savings.
College planning is crucial as education costs continue to rise. Families can consider education savings plans, such as the National Education Savings Scheme (SSPN), to save specifically for their children’s education. As an extra layer of protection and financial stability, our Flexi TermLife plan offers a unique proposition to prepare for your child's education fund or your own retirement. This makes Flexi TermLife an ideal addition to your family financial plan.
With its short-term premium payment period of 5 or 10 years, Flexi TermLife empowers you to efficiently allocate your resources towards building a financial safety net. By incorporating Flexi TermLife into your financial plan, you can proactively address both retirement planning and college planning, securing a brighter future for your family.
Estate planning involves buying a house for a family to live in, preparing for the transfer of assets to their heirs, creating a will, and establishing trusts. Lastly, it is advisable to invest in a financial protection insurance plan.
Medical insurance, such as a comprehensive family medical insurance plan, is important to safeguard your family in the event of unforeseen circumstances, such as death or disability.
Additional Tips
There are additional tips that families can consider when building a comprehensive financial plan. Firstly, consider hiring a financial advisor to guide you through the process as they can provide valuable insights into investment options and insurance plans. Another tip is to save or invest for the long term using high-interest cash savings accounts and finding the right investments for you.
In conclusion, building a comprehensive family financial plan is essential to achieving long-term financial security and achieving financial goals. By setting financial goals, creating a budget, planning for debt repayment, and other considerations, families can create a roadmap to financial success. Overall, building a family financial plan takes time and effort, but the benefits of financial stability and security are invaluable.
