Creating a Household Strategic Plan in 3 Easy Steps

It is the household CEO that is responsible for putting together a budget and identifying the household’s long-term needs, obligations, and desires. I will also tell you that it is important that the household budget is looked at with an eye toward the future. But before any budget worth its salt can be created, one must develop a strategic road map that identifies anticipated big-ticket purchases like houses, cars, and/or vacations that will require large outlays of cash in the future.

This road map is better known as a strategic plan, and it is essentially a crystal ball that is used as the basis for the decisions that help the household CEO determine the household budget.

Here are three steps for getting your strategic plan developed:

1. Identify your long term desires and estimate when you’ll need them and how much they are going to cost. Keep in mind that long-term desires do not only include big-ticket purchases like houses, automobiles, and vacations. They also may include items such as paying off your credit cards and other debts as soon as possible, building a rainy day fund and/or your retirement nest egg, putting your kids through college, home renovations, weddings, or elder care for your parents.

2. Poll the other members of the household for their long term desires. This is probably a good idea unless you like living with some very dissatisfied family members. Believe it or not, teenagers and even younger children have desires that can be integrated into your strategic plan!

3. Build your strategic plan. Here is a very simple example of a household strategic plan for the Smith family:

(For the record, I built this plan using an Excel spreadsheet, but you can also do it with pencil and paper.) As you can see from the example, you want to build your plan in the form of a time line that illustrates the need dates and estimated expenses required to meet the household’s long term desires. At the bottom of the plan, project your estimated required annual savings requirements to get a feel for whether the collective long-term goals of the household are realistic. If not, you may need to refine your plan by moving some of the need dates back a little to ensure your strategic plan is still viable. In some cases, such as when you have plans for very expensive items, you will need to spread your savings plan out over multiple years. In the example I provided, both the bathroom renovation scheduled for CY+6 and the wedding scheduled in CY+8 requires the household to save over a period of two years.

One other thing to notice in my simple example is that the annual household savings rate increases relatively gradually to account for an anticipated increase in income over time. In extreme cases, you may not be able to meet all of the wants and desires of the household. If that is the case, as household CEO, you may be forced to temper expectations and make some unpopular decisions — so please maintain a strong backbone!

When you are done refining the time line, you will have your initial household strategic plan! Keep in mind that your strategic plan should be constantly reviewed and updated as your household circumstances warrant. For example, on the positive side you may get a new job at a substantially higher salary resulting in higher anticipated long-term cash flow. On the negative side, perhaps your daughter decides that she wants to attend Harvard instead of a local state university when she graduates from high school; this decision would result in a significantly higher demand on your available future discretionary funds.

With your household strategic plan completed, you can use the information contained within that plan to build your household budget. My next post will discuss how to create a budget that leverages your monthly household balance to meet your newly-built strategic plan.

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