Take It to the Bank
A little planning can go a long way to securing your family's financial future
By Dwain Hebda
The adage "Failure to plan is planning to fail" is apropos when it comes to managing family finances. Having a solid, reasonable plan for money coming in and going out is critical to the family unit, whether that's newlyweds, new parents or even those who have been at this for a while.
"The number one reason why people don’t succeed or get to the place that they want to is they don't develop a plan," said Deron Hamilton of Denman, Hamilton & Associates of Little Rock. "A lot of times, people want results but they don’t develop a plan to get there."
"The second thing is, once they do develop a plan they don’t execute the plan, and that could be because either the plan is too aggressive or you’re not as disciplined."
Crafting a plan that works is a process that requires communication, professional expertise and periodic revision and adjustment. Few people get the right plan immediately, most of us have basic components that evolve over time and with changing needs.
Hamilton recommends starting with something simple, such as newlyweds deciding to have joint or separate checking accounts.
"For me and my wife, we put everything together because it works well for us," he said. "The advantage to that is we’re able to pool our resources, manage one major account as far as tax planning, as far as what we want to do for the kids, as far as saving for college. But the biggest thing is, it allows us to prepare for our retirement and future together."
"A lot of people that I talk to don’t want to do that, they say 'I want my money and she can have her money, but I just don’t want it to be together.'"
Hamilton said while the decision to pool or separate such money is a personal one, there are certain shared expenses that should be funded and managed out of one joint bucket of money.
"I think at the core of it is realizing that financially there’s a partnership," he said. "At a minimum, I think that you need to get a budget for the home and then decide between the two of you, OK this is how much we need for this budget. Then based on that, you contribute what you agree to contribute to the budget and pay all the bills out of that."
Any financial plan should include ways to save more, something at which modern Americans have shown themselves to be notoriously bad. Again, Hamilton said, be deliberate and strategic in your savings in order to help maximize your chance for success.
"The first thing you want to do is make sure that you have a certain level of savings set aside for operational living," he said. "For some people that’s three months' [worth], for some people that’s six months, for some people that’s one year. Whatever it takes to where if you didn’t have a job and weren't working, you would be able to make it without any additional help."
From there, Hamilton said, families should look to identify specific elements that they're saving toward. This helps keep one's eyes on the prize, so to speak, be it retirement or saving for the kids' college education. It also helps you make smarter choices on exactly what kind of savings vehicle you want to employ to reach your goals.
"I’m really, really big on retirement savings and I’m really big on setting aside resources for college education. But you want to do it carefully because nowadays we have some really bright students and you can save for college and then they may get a full ride," he said. "You want to make sure that a part of your college savings is in vehicles that will allow you to transition those monies to other things if needed."
Once you know where you're going and you've determined how much you can afford to kick in every paycheck to get you there, it becomes a matter of discipline. That's where a trained financial professional—either a financial planner, CPA or both—can play a critical role in keeping you on track, getting you into the right savings or investment products for your needs and helping you minimize your tax liability in the process.
"It’s all about developing the plan and sticking to the plan," Hamilton said. "If you miss it a little bit that’s OK; go ahead and try it again and work toward your financial goals. If you’re persistent and consistent at it, they’ll definitely happen."