Developing Your Financial Plan: 3 Key Questions

Developing Your Financial Plan: 3 Key Questions 

Eileen St. Pierre, The Everyday Financial Planner

Developing a financial plan can be a challenge for today’s families.  Single parent, multigenerational, and blended families face unique pressures.  It can be hard to figure out where to start.  To help you on your way, consider 3 key questions:

Question 1:  Can your family manage financially if you temporarily lose your primary source of income?

To address this, you first need to develop a monthly spending plan. Track all of your income and expenses for a month.  Do this for several months. 

  • Consider the timing of irregular expenses.  If you pay your auto insurance twice a year, divide your bill by 6 to get a monthly estimate.
  • Look for ways to trim expenses.
  • Remember, you cannot always just work more.

Once you have an idea of how much you are spending each month, establish an emergency savings fund.  Deposit at least 3 to 6 months of living expenses (more if you have a lot of dependents).

  • Put this money in an account that you can access on demand with no withdrawal penalties such as a savings or money market account.
  • Set up automatic transfers from your checking account into this account so that you deposit money consistently, whenever you get paid.
  • Remember to replenish the fund after an emergency passes.

Question 2:  Is your family protected if you die or become permanently disabled?

Yes, I know this is not a pleasant question.  But once you address it, you will have much more peace of mind.  Make sure you have basic estate plans in place. 

  • Draw up a will where you can name guardians for your minor children. 
  • Consider trust agreements, especially if you have children or other family members with special needs, as well as children from earlier marriages.
  • Make sure your assets are properly titled and your beneficiary designations are up to date.

It is also important to make sure your insurance coverage is up to date.  Life Insurance is critical for parents with minor children and also for single parents. A typical long-term disability insurance policy can replace 50-60% of income.

The death of a caregiver or childcare provider can have a profound financial impact on a family.  Consider life insurance for these family members – having to pay for this care can be very expensive.

Question 3:  What are your investing goals?

Now that your family is protected against short and long-term loss of income, you can now start thinking about your investing goals.  Make sure you write these goals down – people who do tend to accomplish them.  Make good use of tax refunds and any other unexpected increases in income.

  • Take advantage of employer-based retirement plans.  Your monthly contribution will be automatically taken out of your paycheck.  Increase your contribution every time you get a raise.
  • Take advantage of tax breaks when saving for college by setting up 529 College Savings Plans.  For more information, go to Paying for College.

Finding the answers to these questions is not going to happen overnight.  There are financial and emotional costs involved.  In the end, you will be glad you did.

Visit my Basic Financial Management page for more information.