Family Finances

Your Family and Your Finances

Whether you are recently married, saving for your kid's college or caring for aging parents, most big life events have financial implications. Trying to make the right decisions about your money while juggling work and family responsibilities can feel overwhelming. But with proper guidance and careful planning, you can reach these milestones confidently and help maintain your financial stability for years to come.

Preparing for Big Life Events

From merging finances in marriage, to helping parents plan their estate, family life is full of big financial decisions. Learn how to navigate them—and how a financial professional can help.

Money and Marriage Building a Family Budget Paying for Education Teaching Kids About Money The State of Your Parents’ Estate

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Money and Marriage

There is little more exciting than choosing to align your life with the person you love. Of course, there are conversations you will want to have with your partner before tying the knot. To avoid disagreements and finance—related pitfalls down the road, one of the most important ones is about money — how you will make it, how you will save it, how you will spend it and how you will invest it.

Pursue Your Goals

Generally speaking, your options include remaining fully separate, merging absolutely everything, and a hybrid—like depositing a certain amount every month into a shared account based on your income. There are good reasons to consider a combination of joint accounts (for shared expenses, such as housing) and individual accounts (for discretionary spending, such as taking your friend out for lunch). That said, there is no single right answer. Whether you comingle your accounts or each party takes responsibility for different bills, the important thing is to communicate regularly to make sure you are on the same page. Maybe that means sitting down once a year to chart your shared priorities, or checking in quarterly on your progress. Maybe you would rather discuss money every month or even every week. The frequency is less important than both parties feeling free to raise the topic at any time.
Not every couple needs a prenuptial agreement, but prenups can be a key way for individuals to plan for the "what ifs." Although it might feel fatalistic — planning for the possible end of your relationship when you are still at the beginning — just think about how much more level-headed and loving you will be if you negotiate a peaceable agreement with the person you love while you are in love. This process can prevent a lot of stress and squabbling later. Prenups may be especially relevant for those who enter a marriage with significant assets such as real estate and investment accounts, or children from a prior union. Ultimately, the love you share with your partner is not about dollars and cents. Your main goal should be a fulfilling and happy life together. A little financial planning can help you get there.
Designating beneficiaries for your financial and retirement accounts (sometimes referred to as TOD or POD—transferrable or payable on death) is an easy way to state your financial wishes should something happen to you. Especially if you have children from a prior marriage or other family members who could make claims on your finances, this is a valuable way to help your loved ones avoid probate court and protracted legal issues. You don't have to name your spouse as your beneficiary but updating and clarifying your wishes can go a long way toward helping those you love avoid stressful and emotional disagreements down the line.

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Building a Family Budget

Creating a budget may sound simple, but a flawed plan can leave you struggling to reach the goals you have set. Sometimes the collective decisions you make on your everyday spending have a material impact on your longer \- term goals. Fortunately, a combination of tried \- and \- true practices and modern tools can help you find your way. Learn steps that will help you avoid money\-related stress and make smart spending and saving decisions

Start Planning

Start with your income. If you are a salaried employee, this should be pretty easy — just look at the take-home pay on your paychecks. If you are a freelancer, entrepreneur, or work in an industry with variable wages, take your best estimate by averaging your monthly income from the last six to twelve months. This should give you a general benchmark of your monthly income. To be conservative, you can choose instead to work off of the lowest monthly income you earned in that time period. As a next step, figure out your sources of debt. This includes student debt, car loans, credit cards, mortgages and so on. Write down the total you owe on each of your loans, plus the minimum monthly payment amounts. Total up all your various minimums. For now, assume that you will pay only your minimums. You will also need to account for your fixed expenses, such as rent, insurance premiums and internet bills, as well as your variable expenses, such as dining out or ordering in and renting movies.
Fixed expenses are recurring expenses that crop up in the same amount each month. For example: rent or mortgage payments, phone bills, daycare or tuition fees for your kids and subscription fees of various stripes. Total up all your fixed expenses and write that number down. Variable expenses are expenses that fluctuate from month to month. They are often discretionary and can include groceries (you need to eat, but it's your choice whether to buy that fancy organic mayonnaise), entertainment, going out, shopping, travel, charitable giving and so on. Total those up for a monthly average.
Not every expense is monthly. For example, there are birthday and holiday presents, weddings or other events, and so on. To make sure that these one-offs don't catch you by surprise later, try estimating how much they cost you on an annual or monthly basis. If you can, you should also be setting aside money for financial emergencies, which derail a surprising number of people. As you build your budget, aim to have three to six months of expenses in an emergency fund, possibly more if you have a spouse or dependents.

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Paying for Education

Paying for education has become a major investment — one that often requires years of careful planning. As the costs keep rising, you should approach funding educational expenses, such as tuition, extension programs and advanced professional training, like any other kind of investment that needs a strategy built for your specific needs.

Save for School

Named after Section 529 of the Internal Revenue Code, a 529 plan is a tax-advantaged savings vehicle which allows you to invest for future education expenses. Earnings in a 529 plan are tax deferred, and the withdrawals are generally exempt from federal and state income taxes if you use the funds for qualified education expenses, which include tuition, fees, room and board and supplies. Many states also offer state income tax deductions or credits for various amounts invested in certain 529 plans.

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Teaching Kids About Money

Educating your children about financial matters is important. But that does not mean it's easy. Indeed, many of us struggle to broach the subject of family finances with our family. However, avoiding having "the money talk" with your children can end up costing all of you in the long run.

Invest for Their Future

When asked at what age children start to pick up on money management — things like how much items cost and how to save and budget — nearly half (47%) of high net worth investors surveyed by Morgan Stanley said ages 6 to 11. Half (49%) said this is also the ideal time to begin discussing financial management with kids. However, slightly fewer (40%) reported initiating conversations about finances with their own kids when they were between the ages of 6 and 11.
Arrange a meeting when you will have enough time and privacy to discuss sensitive personal information. And use some of these questions as conversation-starters. Why is it important to talk about money as a family? What are your goals and your children's goals for lifestyle, education, and retirement? How will education be funded? How much will be contributed by each? When is it okay to borrow money, and what are the risks? Do you understand credit scores and what their impact can be? What is the family's view on giving to charity? Why is it important to do so? What is your favorite charitable cause and why?

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The State of Your Parents’ Estate

Talking with a parent about sensitive topics like incapacity or end\-of\-life issues is difficult, but important. Adults with aging parents can open the lines of communication about the family's financial future and the need to have a plan.

Need Guidance?

An important goal of estate planning is to ensure the legacy that parents leave behind includes essential information to help guide the family through a difficult and confusing time. Certain estate planning documents are critical and should be in place in order to distribute assets, enable medical or financial decision-making in case of incapacity, and protect and provide for beneficiaries. Planning ahead can help make the process less painful for loved ones and avoid time-consuming court proceedings. The essential documents generally include a will, a revocable trust, a health care proxy, a living will and a power of attorney.
When thinking about estate planning and the drafting of wills, trusts and the division of assets, a family tree chart can help you build a solid estate plan—particularly in large families. Creating a family tree with your parents and siblings will not only allow you to visualize your family hierarchy, but better understand your parents’ relationships and gain knowledge about all of your relatives. A set plan may help avert conflicts between siblings in the future, as opinions will likely differ on what is best for mom or dad, or how their assets should be divided.
As the executor, you've been entrusted with the responsibility of carrying out a parent's last wishes. Your mother or father has faith in your ability to carry out these wishes—and has put trust in you by appointing you as executor. This honor—and legal responsibility—involves taking care of financial obligations, including the payment of any debt and taxes, and then properly distributing the remaining assets according to the directions spelled out in the will. It also involves maintaining property until the estate is settled and making any required court appearances.

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Morgan Stanley Smith Barney LLC ("Morgan Stanley"), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

Investors should consider many factors before deciding which 529 plan is appropriate. Some of these factors include: the Plan's investment options and the historical investment performance of these options, the Plan's flexibility and features, the reputation and expertise of the Plan's investment manager, Plan contribution limits and the federal and state tax benefits associated with an investment in the Plan. Some states, for example, offer favorable tax treatment and other benefits to their residents only if they invest in the state's own Qualified Tuition Program. Investors should determine their home state's tax treatment of 529 plans when considering whether to choose an in-state or out-of-state plan. Investors should consult with their tax or legal advisor before investing in any 529 Plan or contact their state tax division for more information. Morgan Stanley Smith Barney LLC does not provide tax and/or legal advice. Investors should review a Program Disclosure Statement, which contains more information on investment options, risk factors, fees and expenses and possible tax consequences.