8 Steps to Achieve Family Financial Security: A DIY Guide
a QUICK ROADMap that you can follow to get on the right financial path for you and your family
Welcome to our DIY guide on achieving family financial security.
If you're the type who prefers to take control of your financial future and wants a concise roadmap to follow, this is your go-to resource.
We've distilled the essential steps you need to take to secure your family's financial well-being into 8 easy to follow steps (steps 3 and 5 are optional which is why we say “consider”) with additional resources on each step where applicable.
Ok, let’s get to it!
Step 1: Create a Budget
What is it?
Creating a budget is the foundational step for managing your family's finances effectively. It involves tracking your income, expenses, and setting spending limits.
Most of us have never actually sat down to do this but the step is essential before we do anything else.
After all, we can’t act on our financial goals and dreams until we have a clear picture of where things stand today.
How to Do It:
There are lots of ways to create a budget depending on your preferences.
If you like using apps, we would suggest using budgeting apps like Mint or YNAB to track expenses, categorize spending, and set financial goals.
That said, there are many other online budgeting apps if you don’t like these (here is a handy review of the best in 2023)
If you want to do it yourself and keep track using Microsoft excel we have a free template here (if you don’t like ours here is a review of the best 7 free versions in 2023)
Review your budget regularly to make adjustments.
Rules of Thumb to Follow:
Traditionally people say that you should follow the 50/30/20 rule: allocate 50% of your income to necessities, 30% to discretionary spending, and 20% to savings and debt repayment. This is nice if you can do it but not a necessity.
It’s more about first trying to get your emergency fund taken care of (more below), and then using your budget to move down the list.
Why it's Important:
Budgeting helps you understand where your money goes, prevents overspending, and enables better financial planning.
Additional Resources:
Step 2: Build Emergency Savings Fund
What is it?
An emergency savings fund is a dedicated account for unexpected expenses, like medical bills or car repairs.
How to Do It:
Open a separate savings account, set up automatic transfers, and avoid touching this fund unless it's a real emergency.
This savings account will also earn a return over time (can be a high yield savings account) and there are several right now offering attractive returns.
Rules of Thumb to Follow:
Save at least three to six months' worth of living expenses. This should be factored in to your newly created budget above until you achieve it.
You can individually decide to have more or less in your emergency fund but just remember this should be money set aside and not touched under any circumstances.
Why it's Important:
An emergency fund provides a safety net, preventing you from falling into debt when unexpected costs arise.
Additional Resources:
Step 3: Consider Life Insurance
What is it?
Life insurance provides financial protection for your family in the event of your death. If you have people that depend on you and your income, this should be your next step in achieving family financial security
How to Do It:
Research different types of life insurance (term, whole life, etc.), compare quotes, and consult with a financial advisor for personalized advice. Remember once you have done this to factor premium payments into your budget from step 1!
Rules of Thumb to Follow:
The common wisdom is to aim for coverage that's 10-15 times your annual income. This can be more of less depending on your decision though.
Why it's Important:
Life insurance ensures your family's financial stability and helps cover expenses like mortgages and college tuition. This is not a 100% essential item if you don’t want it but we would consider it especially if you have people in your family that depend on your income.
Additional Resources:
Step 4: Manage Debt
What is it?
We are not going to tell you to get rid of all your debt. Debt management involves reducing and effectively managing your debts, such as credit cards and loans.
This step sometimes comes down to more of a personal choice. Some people want to work towards having zero debt in their lives and some are ok with having some (for more to help shape your decision making see our additional resources below)
How to Do It:
Create a debt repayment plan and put it into your budget in step 1. We would suggest prioritizing high-interest bad debt and avoid taking on new debt until you are satisfied with your overall debt level.
Rules of Thumb to Follow:
Ideally, keep your debt-to-income ratio below 36% is a rule of thumb to follow although this will vary based on your level of comfort and ability to pay off debts in a downside scenario .
Why it's Important:
Reducing bad debt can free up money for savings and investments, improving your financial security.
Additional Resources:
Step 5: Consider A wILL OR A TRUST
What is it?
Similar to life insurance, setting up a will or a trust can help your family sort out financial issues if something were to happen to you.
Having one in place can save them a lot of time and money fighting with probate court.
How to Do It:
There are several low cost ways to accomplish this yourself (more below) or other ways to get more complex depending on your situation.
Rules of Thumb to Follow:
Anything that will need to be sorted out should be stated clearly in the will or trust. Setting up a trust will help avoid probate court (more below).
You should also make sure all financial accounts (bank, investment, etc) have your spouse as a listed beneficiary or a joint holder.
Why it's Important:
This will help your family quickly be able to access funds in the case of a negative event and have your wishes clearly spelled out so they don’t have to guess.
Similar to life insurance, we wouldn’t say this is 100% essential to establishing family financial security but if you have people who depend on your income it will make things a lot more streamlined and a way to further protect your family.
Additional Resources:
Step 6: Invest for Retirement
What is it?
Investing for retirement involves saving and investing for your golden years through retirement accounts like a 401(k) or IRA.
How to Do It:
Set up retirement accounts, choose diversified investments, and increase contributions as your income grows.
Rules of Thumb to Follow:
Aim to save 15-20% of your income for retirement.
Why it's Important:
Retirement accounts help you build wealth over time and ensure a comfortable retirement.
Additional Resources:
Step 7: Invest for Kids' Education and Teach Them about money
What is it?
Investing for your children's education ensures they have the funds they need for college. Additionally, teaching kids about money imparts financial literacy.
How to Do It:
Open a 529 plan or similar savings vehicle (more below), set automatic contributions, and involve kids in age-appropriate financial discussions. In terms of teaching the kids, talk to them about what you have accomplished so far and look to go over any other money topics with them where you feel comforatble.
Rules of Thumb to Follow:
Contribute regularly to a 529 college savings plan or similar vehicle (more below).
Why it's Important:
Investing in education secures your child's future, and financial education empowers them to make smart financial decisions.
Additional Resources:
Step 8: Set Long Term Financial Goals and Grow Wealth
What is it?
Setting financial goals helps you define your financial aspirations, whether it's buying a home, starting a business, or traveling the world.
How to Do It:
Write down your goals, create an action plan, and regularly review and adjust your financial strategy. This is where you may look to bring in a financial coach, financial advisor, or outside source to help (more below).
Rules of Thumb to follow:
Set SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound).
Why it's Important:
Clear goals provide direction and motivation for building wealth.
Additional Resources:
Final Thoughts…
Thats it! Achieving family financial security is a step-by-step journey.
Follow these eight essential steps (you don’t have to go in strict order if you are drawn to one or two more), and you'll be well on your way to securing a stable and prosperous financial future for your family.
Remember, it's never too early or too late to start working towards financial security! If you need any encouragement you can always contact us here.
