03 · Family Financial Planning
Run your family like a company: a balance sheet, a cash-flow statement, emergency reserves, debt management, budget discipline. Nothing here relies on "inside tips" or "get-rich-quick chances" — it is financial order any household can follow.
1. The Household "Four Buckets of Money" Framework
Divide all household money by "purpose and time horizon" into four buckets, physically separated, never borrowed between:
| Bucket | Purpose | Amount benchmark | Where it lives |
|---|---|---|---|
| ① Spending money | Daily expenses, next 3–6 months | 3–6 months of total household spending | Money market funds, bank demand-plus deposits, short-term deposits |
| ② Protection money | Hedging risks of serious illness, accidents, death (hedge) | Premiums ≤ 5%–10% of annual income | Insurance (see 05 - Insurance and Protection) |
| ③ Growth money | Medium/short-term investing for returns | The part you can afford to lose; ratio varies by person | Index funds, bonds, gold, etc. (see 01 - Asset Allocation Basics) |
| ④ Long-term money | Retirement, children's education, 10 years+ | Money untouched long-term | Mainly broad-based indexes and regular investing |
Core rules:
| Household profile | ① Spending | ③ Growth | ④ Long-term |
|---|---|---|---|
| Just employed, no debt | 20% | 40% | 40% |
| Mortgage + children | 30% | 30% | 40% |
| Near retirement | 40% | 15% | 45% |
(② Protection money is spent as premiums and doesn't occupy a share of stockpiled funds.)
2. Household Balance Sheet and Cash-Flow Statement
2.1 Balance sheet (update once a year)
| Assets | Amount | Liabilities | Amount |
|---|---|---|---|
| Cash & deposits | ______ | Mortgage balance | ______ |
| Money market funds / wealth products | ______ | Auto-loan balance | ______ |
| Stocks / funds market value | ______ | Consumer loans / credit-card installments | ______ |
| Property (owner-occupied, at market value) | ______ | Loans from relatives/friends | ______ |
| Vehicles (at resale value) | ______ | Other liabilities | ______ |
| Pension account | ______ | ||
| Total assets | ______ | Total liabilities | ______ |
Net worth = assets − liabilities. Watch three metrics:
- Debt-to-asset ratio = liabilities ÷ assets: ordinary households should keep it under 50% (new households with mortgages commonly run 40%–60%; an empirical range, not a hard rule).
- Liquidity ratio = liquid assets ÷ monthly expenses: ≥ 3 (i.e., at least 3 months of emergency cash) to pass.
- Net-worth growth rate: check monthly — is it positive? Does it keep up with wage growth?
2.2 Cash-flow statement (record monthly)
| Item | Amount |
|---|---|
| Salary income (after tax) | +______ |
| Passive income (investments / rent) | +______ |
| Total income | ______ |
| Mortgage / rent | −______ |
| Daily expenses (food, clothing, transport) | −______ |
| Children's education | −______ |
| Insurance premiums | −______ |
| Entertainment / travel | −______ |
| Total expenses | ______ |
| Monthly surplus | ______ |
Two red lines:
- Monthly surplus ≥ 0: chronically negative is where "living paycheck to paycheck plus debt" starts; cut spending or raise income before talking about investing.
- Forced savings rate ≥ 20%: route the surplus into "long-term money" first, then spend what's left (save first, spend after).
3. Emergency Fund Management
3.1 Where to keep it: three options
| Instrument | Liquidity | Return (reference) | Traits |
|---|---|---|---|
| Money market funds (Yu'e Bao type) | T+0 / T+1 | 1%–2%/year, moves with rates | Withdraw anytime; low returns |
| Government bond reverse repo (1–14 days) | Auto-return at maturity | Higher at quarter/year ends, lower otherwise | Needs manual operation; suits large idle sums |
| Bank demand-plus (negotiable CDs etc.) | Flexible | 1%–2.5%/year | Strong principal-preservation character; mind minimum purchase thresholds |
(Returns are historical data, not indicative of future results; product disclosures prevail.)
3.2 Sizing guidance
- Baseline: 3–6 months of total household spending. Single-income households take 6 months; dual-income with stable jobs may take 3.
- Add-ons: add one month per mortgage payment if you carry a mortgage; add another 1–2 months for elderly/children's medical uncertainty.
- Cap: cash beyond 12 months of expenses is "over-hedging" — slowly eaten by inflation (see 04 - Inflation and Purchasing Power); move the excess into growth or long-term money.
3.3 Usage discipline
- Touch the emergency fund only for three situations: job loss, serious illness, sudden large expenses.
- After any withdrawal, the first priority is refilling it, not continuing to invest.
- "Buying the crash" does not count as an emergency — dip-buying ammunition comes from "growth money," kept separate from the emergency fund.
4. Debt Management
4.1 Interest-rate comparison of common debts
| Debt type | Rate (reference) | Character |
|---|---|---|
| Housing Provident Fund loan | ~2.6%–3.5% | Low rate, long-term essential need; fine to keep |
| First-home mortgage (commercial) | 3%–4.5% (floats with LPR) | Low rate, acceptable long-term |
| Auto loan | 3%–6% (nominal often differs from true rate) | Moderate; convert to the real annualized rate |
| Credit-card installments / minimum payments | Effective annualized often 15%–20% | High interest; clear ASAP |
| Consumer loans / cash loans | 8%–24%+, some platforms higher | High interest; repay with priority |
| Online lenders / loan sharks | 24%–36%+ (some criminal) | Poison; clear immediately |
4.2 Why high-interest debt goes first
Mathematically, paying off an 18% consumer loan equals earning a risk-free 18% annualized investment — no "guaranteed" product in the market matches it.
| Repayment order | Priority |
|---|---|
| ① Online lenders / loan sharks | Immediate; be candid with family if needed and use legitimate channels |
| ② Card installments / consumer loans | Repay first if you hold cash; don't agonize over "keeping cash handy" |
| ③ Auto loan (when rates are high) | If above investment yields, repay |
| ④ Mortgage (low-rate) | No rush to prepay — cheap leverage is the cheapest borrowing ordinary people get, unless easing monthly pressure |
A common misconception: "prepaying the mortgage saves so much interest" — if your cash yield (say 4% on wealth products) exceeds the mortgage rate (3%), prepaying isn't worthwhile; but if peace of mind from being debt-free matters more to you, that's perfectly fine too. The point is running your own numbers, not following the crowd.
4.3 Debt red lines
- Total monthly payments ≤ 40% of monthly income (mortgage, auto loan, installments included).
- Never borrow consumer loans to invest (especially leveraged trading) — that's betting uncertain gains on certain high interest.
- Put loans between family/friends in writing, discuss interest openly; even brothers keep clear accounts.
5. Budgeting and Expense Tracking
5.1 Do you need to track expenses?
- The real purpose of tracking isn't saving money — it's seeing where the money went. 90% of families couldn't say where last month's money specifically went; that's the root of paycheck-to-paycheck living and impulse spending.
- Full tracking is for households with negative cash flow, no savings, or unpayable debts; those with healthy cash flow can settle for monthly summaries.
5.2 How to track without suffering
| Method | Practice | Fits |
|---|---|---|
| Minimalist tracking | Watch only two numbers monthly: income and month-end balance; the difference is spending | The lazy |
| Category tracking | Only 5–8 broad categories (housing/food/transport/education/entertainment/misc), auto-imported via app | Most families |
| Budgeting | Set category caps at month start, alert on overrun | Overspenders |
Three anti-abandonment tricks:
- Track big numbers only: skip every CNY 3 drink; just remember the "dining total."
- Commit to 3 months first: three months of data tells you where money goes; simplify afterward as needed.
- Don't chase perfection: missing a few days changes nothing; don't quit the whole month over one lapse.
6. Household Risk Budget
🛑 Forced savings rate of 20%
Monthly surplus ≥ 0, forced savings rate ≥ 20%. Chronically negative surplus is where "paycheck to paycheck plus debt" begins; cut spending or raise income before talking about investing.
6.1 Definition
Household risk budget = the maximum loss you can bear in investing = the amount whose loss would still let you sleep at night.
6.2 How to set it
- Work backward from "sleepless": sketch your portfolio's equity curve — do you panic at -10%? At 20%? At 50%?
- Reference anchors: annual income × 1 (single), × 0.5–1 (with family); aggressive types might stretch to 2 years' income, but beyond two years' income you're usually staking life's floor.
- Use the drawdown table from 02 - Compounding and Return Expectations to back out position sizing: if you can only stomach losing 20%, don't let potential drawdown exceed 20%.
6.3 Two execution disciplines
- Losses hitting the risk-budget cap = stop adding positions, not "wait a bit longer."
- Household risk budget ≠ trading risk budget: trading stop-loss discipline (see Chapter 07 - Trading System) governs "how much this trade loses"; the household risk budget governs "the most this portfolio loses overall." Set both; enforce both.
7. Common Money Mistakes of Chinese Households
| Mistake | Reality |
|---|---|
| Keeping everything in bank deposits | Deposit rates lag inflation long-term; money quietly shrinks (see 04 - Inflation and Purchasing Power) |
| Buying only "wealth management products" | Many "stable" products are bond-like under the hood, yielding less as rates fall; non-guaranteed products carry NAV fluctuations |
| Copy-trading neighbors into stocks | "Buying because the neighbor made money" = buying tops; "just holding through being trapped" = no discipline |
| Trading stocks for friends/relatives or lending them money | Gains sour relationships; losses end friendships; "never manage anyone else's money" is household finance rule #1 |
| Insuring only children/spouse, not yourself | The breadwinner running naked is the whole family's largest exposure |
| Paying all-cash once the down payment is saved | In low-rate eras, moderate leverage beats locking up liquidity (not a hard rule; depends on circumstances) |
| High-yield products promising guaranteed principal + high returns | Anything promising both is a hallmark of scams — see Chapter 08 - Scam Detection |
8. Monthly Household Finance Checklist
- [ ] All income booked this month; monthly surplus positive
- [ ] 20% forced savings routed into "long-term money"
- [ ] Emergency fund still ≥ 3 months of expenses
- [ ] No new consumer loans / installments this month
- [ ] Premiums paid on schedule (all four policy types active)
- [ ] Portfolio rebalancing window due? (once or twice a year)
- [ ] Balance sheet / cash-flow statement updated
⚠️ Risk Warning
Rates, returns, ratios, and tables here are historical empirical figures, not indicative of future results, and constitute no recommendation of any specific product. Financial planning cannot eliminate risk: investments can lose principal, deposit and wealth-product returns can trail inflation, insurance involves exclusions and claims disputes. Decide independently based on your family's actual situation, and consult licensed professionals for large sums, loans, and insurance planning.