8 steps to family financial planning

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8 steps to family financial planning

A few years back I was contacted by 2GB’s radio host, Alan Jones, who told me of a young man, Rob, who was in a spot of financial trouble. He was injured and couldn’t work and his compo would not cover his loans. He had a young baby and he looked set to lose his house!

When I chatted with him, he explained that he borrowed using a personal loan to improve his bank account to get a home loan. He was encouraged by his dad to do this because his dad had never got into real estate and wanted to help his son!

Everything was OK until Rob went on compo and home loan interest rates went up by 2.5 per cent. Then the proverbial you-know-what hit the fan.

Leadership is key

The rescue job wasn’t easy, but it drove home the message that parents have to take a leadership role in teaching their kids the rights and wrongs of money. So, I’m going to outlay what I think is an ideal set of ‘must-dos’ for any family who wants to get their finances in order.

In a perfect world, a family would go to a financial adviser and that adviser would help create a mega family financial plan, but a parent with a mission to help their kids can achieve just about anything.

Call a family meeting

I reckon you should call the family together around the kitchen table and share your vision with them. It could be: “I want to send you all to private schools, ensure you make it to university, have an annual holiday together each year, pay off the family home in 10 years and make sure we retire at age 60 with $1 million adjusted for inflation in our combined super fund”.

You should explain that every member of the family will have a call on the family’s resources or money and together can make it work or make it fail.

As a great exercise, the family should do a combined budget so everyone gets to own their spending life. These drains on the family income need to be understood by all members of the family and it will help when you ultimately match the family income with the family expenses. It gives you an idea of what you are saving, or not saving, which is often the case. 

Do the maths

Assuming that there is saving, you then need to link this to the initial dreams of paying off the house, covering private school fees and building up your super.

Bank calculators will show you what you need to throw at your home loan to bowl it over in 10 years. Super funds and calculators will also give you an idea of what your combined super should be when you salute 60 years of age.

This means you can work out whether you can achieve your goals with your current spending and saving. This could open the conversations with your kids and spouse around their spending and their potential to earn income.

Everyone OK?

I believe you have to get an agreement from all family members that the goals or the vision are something that’s good for the family. I know some people who have said to their kids that they’ll always want to help them when they get married and have kids or when they might want to start a business, so they need to be wise with their money now to be well-placed for the future.

Smart money tactics

If you get buy-in from the family, you can suggest smart money tactics or habits that help boost the family’s potential saving levels.

Try thinking about these:

  • Save every month
  • Avoid silly debt
  • Shop around before you buy
  • Buy used instead of new
  • Take care of your stuff
  • Teach yourself about stocks and property
  • Create a financial plan and make sure you’re achieving your milestones on saving and expense control.
Eight steps to create a plan

To actually create the plan, here are eight smart steps:

  1. Total up your income
  2. Total up your expenses and understand your spending
  3. Estimate the income needed to cover your expenses allowing for inflation
  4. Work out how much you can save
  5. Work out if it will achieve your goals
  6. Earn more income and/or cut your expenses to boost your savings
  7. Create the income growth plan based on sensible investments in shares and property
  8. Become an expert on these investments or talk to an expert to help you.
Set an example

It could be the best piece of advice you will ever get, particularly if you make it happen very early in your family’s life.

The getting richer game is about saving and then investing over as long a time as possible as you don’t get wealthy overnight. You get wealthy slowly relying on the snowball effect of compound interest.

One final piece of advice — the family leader/s have to set the example and embrace the knowledge. If this doesn’t happen, you will be a poor role model and you could be to blame for the financial mess your kids eventually end up in down the track.


Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published: Thursday, March 03, 2016

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