What are your family's money goals? Or maybe you are so overwhelmed by the day to day struggle to make ends meet, and all the different directions your limited money is pulled in, you've never even stopped to think beyond your next paycheck and this month's rent. No matter where you are at right now, you can use this simple 4 phase framework to set, and more importantly, reach your family's money goals.
The 4 Phases of Family Finance
You wouldn't be here reading this if you weren't interested in changing your family's current financial situation. The first step towards doing that - the first step towards any life changing transformation really - is acceptance.
Accept Your Starting Point
Before you can start to set and reach your money goals, you have to be honest with yourself about where you currently stand right now. You can't keep hiding debt balances from your spouse. You can't pretend those past due bills don't exist. And you can't keep living today on money you hope to make someday.
Setting big money goals is easy. The harder part is acknowledging and accepting where you are now so you can set the course from here to there. Let's call this acknowledgement and acceptance of the here and now the first step...
So, before we continue... I want you to close your eyes, take a deep breath, and be honest about where you are with your family finances right now.
- Are you totally overwhelmed and unsure where to begin?
- Are you worried you are only one emergency away from being completely broke?
- Do you feel like no matter how much money you make, it's never enough?
- Maybe you are clear on your day to day expenses, but not sure how to prioritize for the future or long-term?
Whatever your concerns are, write them down. Be honest. We all started somewhere. Accepting that starting point is the fastest way to set your path forward...
Phase 1: End the Overwhelm
The cost of overwhelm is tremendous. The stress alone negatively impacts every aspect of your life. But it is expensive financially as well. Late fees. Overdraft charges. Higher interest charges. All costs you cannot afford, when you are struggling to make ends meet already.
If you feel overwhelmed, disorganized, buried in debt and unable to pay all your bills every month, you are in Phase 1 of the Family Finance Transformation. Phase 1 will walk you through how to know where your money goes every month, guide you through building a budget, and help you establish a financial calendar so you never pay a late charge again. Phase 1 will help you take control of your family finances, day to day.
Even if you think you are beyond Phase 1, this is an excellent place to start for anyone to really get a good grasp on your current financial situation, and lay a strong groundwork for reaching your money goals, both daily and for the future.
You can be well on your way with Phase 1 in as little as a few hours, if you have well documented spending and bill files. If you operate with mostly cash, you may have to save receipts, pay stubs and bills for a few weeks to a month to gather the information you need to complete this Phase.
Phase 2: Start the Climb
Most families will believe they are in Phase 2. You live comfortably enough day to day and can pay your bills... but you are keeping it all together with credit cards or are buried in student loan debt.
There never seems to be any margin for error or extra money to save for any money goals, like a down payment for a home or your retirement. You would struggle or be completely unable to cover an unexpected $1,000 emergency (like a trip to the ER, the deductible for an auto or home insurance claim, replacement of a major appliance or major maintenance on your car). You're organized, but you constantly worry about the "What ifs" and never have anything left over for your "Somedays...".
In Phase 2, you will learn to use the tools from Phase 1 (budget and financial calendar) to build breathing room into your family finances so you can reach short-term money goals. You will end your use of debt by building your own emergency fund. Then, you will eliminate all your existing debts (other than your mortgage), and build a bigger savings cushion.
The time it takes families to complete Phase 2 varies the most. It will be dependent on
- Your starting debt balances
- Your income
- Your level of commitment and discipline
However, if you stay the course, most families are able to complete this phase within 2-3 years.
Phase 3: Plan for the Future
Most families have money goals that fall into Phase 3... even when they are struggling with daily expenses and buried in debt. Remember to walk before you run. Saving for your retirement and your kids' college funds are important, but not if you are carrying debt that costs you more than your savings will ever earn!
Once you have eliminated all debts other than your mortgage, you have entered Phase 3. And I promise you will have ample room in your budget to tackle all your major money goals. Buy your first home or payoff your mortgage entirely. Pay cash for a car. Imagine how much you can put towards your family's money goals every month with no rent, mortgage or car payments?
What will you do with all that money? Max out your retirement contributions. Start your child's college funds. Establish savings for major purchases so you can be your own bank - pay cash for cars, vacations, furniture, you name it. You can give back to causes that matter to you. Very quickly, all your somedays will become today.
Phase 4: Wealth Creation
While it may never seem possible from where you sit today, eventually there will come a point where you own all your assets, and you are beyond year to year financial planning.
Your income becomes more passive through management of an investment portfolio. You will likely want to consult with an attorney to craft an estate plan. And if you are a business owner and leader, it is important to consider a succession plan as well.
Congratulations! By Phase 4, you have achieved Financial Transformation - now, it's time to think beyond yourself, and provide a financial legacy for your children and generations to come.
