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Family Financial Planning

Family financial planning

Over 70% of our clients are families with children. Family financial planning is different from individual financial planning. With raising children, hiring nannies, and attending school events, time and financial decision-making are often scarce resources. Below are five elements critical to most family’s financial planning:

Cash Flow System & Retirement Savings:

Cash flow is the heart of every financial plan. Your cash flow system needs to be simple and trackable. Tracking every expense is overkill, as you won’t gain much actionable insight. What truly matters is whether we are on track to reach your most important financial goals. What is your system for balancing competing goals like saving for retirement, paying down a mortgage, or saving for higher education? We generally recommend families follow a reverse budgeting system, also called a goals-based approach. This is simple to implement and may remove the need for complex budgeting apps. Here is a link to our approach. The best news about this approach is it’s a proven system. We've successfully implemented this system across hundreds of families over the last ten years, and we've seen it work with the busiest of clients.

For retirement savings, we see far too many families only contributing to 401(k) plans. Unfortunately, only saving into a 401(k) plan will likely leave your retirement severely underfunded. Most of our clients save in a variety of different retirement and tax-advantaged accounts, e.g., 401(k) plans, IRAs, joint investment accounts, etc. How much to save is a function of when you’d like to be financially independent and what kind of retirement you envision. Given increased longevity, rising healthcare & long-term care costs, and 100-year average inflation of approximately 3%, a good starting place is to consider saving at least 20% to 25% of gross income towards retirement. If you’re older with lower investment capital, your retirement savings rate may need to be even higher. 

Higher Education Planning:

The average annual tuition inflation at public four-year colleges is 5%. This means the cost of college will double almost every 14 years. Private tuition increases can range from 5% to greater than 10% per year.

If a core goal is to fund four years of higher education, there must be a plan. Otherwise, your children may be saddled with student loan debt. Simply contributing to a bank account will not yield enough return to beat the future cost of tuition.

A 529 Account is the gold standard for funding education. These tax-advantaged accounts allow parents, grandparents, and friends to contribute to education. Money grows tax-deferred and can be invested in a diversified equity portfolio. Withdrawals are tax-free if used for qualified educational expenses like tuition, room and board, school supplies, etc.

An important note: As no retirement loans are available, we usually suggest prioritizing your retirement funding before investing too heavily in 529 Accounts.

Family Insurance Plan:

I view insurance as a plan for worst-case scenarios or the shield of your financial plan. Our firm’s approach to insurance is simple: transfer the risk to an insurance company for an event that could ruin your financial plan. Smaller items like a broken phone, deductible, and certain travel expenses can be best self-insured with an adequate emergency fund.  

For most families, the risks that could ruin their financial plan are health issues, untimely, death, lost income if they are unable to work full-time, and a lawsuit. The insurance policies corresponding to these are health insurance, life insurance, own-occupation disability coverage, home, auto, and umbrella liability insurance. 

Earthquake insurance is typically needed if you own a home in an earthquake-prone area (most of the PNW). For example, if a large earthquake destroys your home, you still have to pay a mortgage on top of the rebuilding cost. Regular home insurance policies do not cover any movement of the ground.

To evaluate if you're missing coverage, ask yourself, what is our plan if this happens? For example, if I get cancer and am unable to work full-time, how will I cover my child’s tuition, pay my mortgage, and save into retirement accounts? Simply relying on what your employer, state, and government provide often will be disappointing, given the low coverage amounts.

Estate Plan:

Only 26% of Americans have an estate plan. If you don’t have an estate plan, the state you die in will make a plan for you. This will usually cost your family and beneficiaries more, quite a bit of time in probate court, and, worst of all, it may not accurately reflect your wishes and legacy. The need for an estate plan increases with children. For example, if both parents pass away, who will raise your children? Who would be the trustee of your children’s inheritance? Who pays the bills if you're unable to?

An estate plan does not need to be complicated. The core of an effective estate plan is your beneficiaries on accounts, Will, Financial and Medical Power of Attorney, and Advanced Medical Directive. 

Certain states, like Washington State, have an estate tax seperate from the federal limit. In WA State, the tax ranges from 10% to 20% for estates over $2,193,000. Given the value of homes, retirement, investment accounts, and more, many families will be well over this amount. To plan for this, there are more advanced estate planning tools like Bypass Trusts and family gifting to help reduce this state estate tax.  

A Trusted Guide:

“Receiving good financial advice pays a dividend that builds both wealth and confidence. The research is unequivocal that a competent financial guide can both help you achieve the returns necessary to arrive at your financial destination while simultaneously improving the quality of your journey” - Daniel Crosby, Ph.D.

A financial planner is a guide, a technical financial master, a teammate, a confidant, and most importantly, someone who will listen and genuinely try to help. 

A study released in 2023 by the Financial Planning Standards Board found that people who work with a certified financial planner enjoy life more, better understand their finances, and are more confident about their finances. Clients with financial planners are highly satisfied with their wealth (87%) and feel financially secure, with a similar proportion (86%) feeling better off. By comparison, just two in five (41%) consumers who are unadvised are highly satisfied with their wealth.

One of the greatest benefits of working with a financial planner is the behavioral coaching of tuning out the noise. Market forecasts, predictions, and investment performance do not truly matter in the long run. What matters is having a robust plan that can withstand whatever life throws at you, a diversified investment portfolio, and the ability to stick with that plan through all seasons of life. 

If you’d like to learn more and discuss your family's financial plan, feel free to schedule an initial consultation. 

*All written content on this site is for information purposes only. Opinions expressed herein are solely those of Ignite Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources, and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation. This website may provide links to others for the convenience of our users. Our firm has no control over the accuracy or content of these other websites.


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