Financial planning for an Established Lawyer with a Young Family

The pressure to create a solid financial plan for a young family can be a little stressful; however, this whole process can be made so much easier with the right financial guidance in hand. I have had the chance to sit down with a young established lawyer who is married and just recently had a baby. Jane’s* family is like most young families that are just learning the ropes of creating a stable financial foundation. Currently on maternity leave but otherwise she is an established lawyer working on a full-time basis. In this article, I will discuss the aspects of my interview with her and the solutions to the financial queries that she and many other couples with young families are asking.

Financial planning is a time-sensitive matter which should be addressed as early as possible. Here are the key areas we’ll be looking at:

• Portfolio makeover and Budgeting
• Savings for children’s education
• Home buyer’s plan
• Protecting your family’s needs

Portfolio makeover and Budgeting

Jane mentioned that she had dabbled in the stock market and was not well versed in building a portfolio. She had lost money during the market downtown of December 2018 and it had caused her to sell some of her positions prematurely. It is very important to understand the three components of risk when building an investment plan, which are:

• Risk requirement: The optimal level of risk to achieve the results you require.
• Risk tolerance: The amount of risk that you’re emotionally comfortable with.
• Risk capacity: The maximum level of financial risk you can afford to take.

By speaking to a professional, Jane will understand how to structure her investments based on these components of risk. More importantly, if she doesn’t have a desire to manage her own investments at least she would be well versed in conveying her strategy to a professional who can implement and monitor the portfolio for her.

Jane does not have student loans but her husband does. They are also planning to buy a house and have a newborn to care for. There are daily, weekly, monthly and yearly expenses not to mention unforeseen costs that they need to plan for to understand their finances. As both of them are high income earners, they can decide on who will be paying the majority of the household expenses and who will focus on building the emergency & savings fund. Preferably, living off one spouses’ income helps in being able to maximize their retirement accounts, plus if their employer does offer matching contributions it is imperative to take advantage of it.

By creating a defined budget and a monthly savings goal, Jane and her husband can create a strong financial foundation and prioritize their goals without feeling overwhelmed and tackling the debt at a fast rate.

Savings for children’s education 

It’s never too early to start saving for your children’s education. In fact, if you can begin to save for their education as soon as they are born or as soon as you decide to start building a family, the better. Because according to Statistics Canada, tuition fees have increased by an average of 3.1%. So that means if education currently costs $46,764, it would cost your child 17 years from now $78,579 to obtain their undergraduate degree. Jane just had a child and if she opens an education fund and consistently allocates a monthly amount, she will have a significant college fund for her child in the future. She may choose to use an RESP or whole life insurance policy in her child’s name to fund her education. A discussion with a qualified professional is important to evaluate which options are more suitable.

Home buyer’s plan

Jane and her husband are currently renting a house but are looking to buy a home in 2019 and are first time home buyers. The two have a working strategy in place: Jane directs all her salary towards savings in RRSP/ TFSA and her husband’s salary covers all their expenses. Most families start out with renting and over a period of good financial planning buy their own home. This can become a reality for Jane’s family using their home buyer’s plan which utilizes their RRSP and has a 15-year repayment plan. The government recently increased the limit from $25,000 to $35,000 per person, which will give the couple a supplementary down payment totaling $70,000. If they were to take advantage of this, they would need to repay one-fifteenth of the total amount borrowed in each tax year until the full amount owed is paid back into their RRSPs. The repayments are required in the second year after the tax year you made the initial withdrawal.

Protecting your family’s needs 

When it comes to protecting your loved ones, it is important to think about our inevitable mortality. That’s why speaking about insurance and wills can be a touchy subject that needs to be discussed with an insurance advisor and lawyer. Jane’s husband is not insured and the couple is looking for life insurance. It is important to have life insurance especially when you have dependents whose life would be negatively impacted by the loss of your income.

Jane’s parents bought a permanent insurance policy in her name but unfortunately, Jane doesn’t have the details regarding her insurance policy i.e. the death benefit amount and how much cash value has accumulated in the policy. It’s important to obtain this information and discuss with her insurance provider if the policy is sufficient to shoulder any financial hurdles that may occur if she were to pass away (making sure they are not over or under insured).

The couple needs to understand that death is not usually the bane of our existence, rather disability can also wreak havoc on our financial standing and drastically deplete our savings; the ability of being able to get up and work is something we usually take for granted, but what if this ability is suddenly taken away from us due to a health scare? how have we positioned ourselves to tackle this challenge? It’s important to bulletproof our finances and mitigate as much financial risk as possible while reminding ourselves to consistently enjoy the little things that enrich our lives.

You too can create a financial ground for your family today. What’s holding you back?

For a chat regarding your financial roadmap, please contact Zainab Williams 

This article is intended to provide general information and for discussion purposes only. Accordingly, the information in this article is not intended to constitute accounting, tax, legal, investment, consulting or other professional advice or services. Please consult a qualified professional advisor before making any decision or taking action that might affect your personal finances or business.