The years when you are raising a family can be the most pressured from a financial perspective. You may still be paying off debt or trying to get on the property ladder, while simultaneously doing everything you can to build a career and give your children the best start in life. You may also have ageing parents who are becoming more reliant on you.
The years pass, and your thoughts may turn to retirement or passing on assets to the next generation.
Making a plan early on can remove some of the anxiety around money, and leave you free to enjoy time with your family.
In this guide, we outline the main issues you should consider.
Know Your Budget
Family life can be expensive, and children are not always the most understanding when it comes to prioritising your spending.
The first step is to itemise every source of income coming into the household. You then need to work out your essential expenses.
If you are spending more than you earn, you are storing up a problem for the future and need to take action. Any of the following may help to free up some extra cash:
- Shopping around for the best deal on utilities, mobile phones and TV packages
- Looking for discounts on routine shopping, gifts and days out
- Reviewing your mortgage, debt and insurances to reduce your monthly payments
- Taking on extra work, starting a side business or going for a promotion
You may find that you are earning more than you spend, in which case you should find a use for the extra money. For example:
- Clear debt more quickly
- Increase your pension contributions
- Build an emergency fund
- Save for the children’s future
- Improve your family’s lifestyle
It is much easier to create a plan when you know your starting point.
Set Your Priorities
Now that you know your current position, it is just as important to establish where you would like to be in the future.
Firstly, you need to set some goals. A family holiday may be a reasonable starting point, but try to think longer term. Ask yourself the following:
- When would you like to retire, and how much do you think you will spend?
- What kind of support would you like to offer your children? Do you want to fund their education and first home deposit, or is it more important that they learn independence?
- Do you need to move to a bigger house, or carry out improvements to your current home?
- Is there anything else you would like to achieve?
Once you see your goals written down, it should be easier to prioritise them. Which ones do you feel most strongly about?
Prepare for the Worst
Before you even start on the path towards achieving your goals, you need to put some protective measures in place. A strong financial plan does not crumble when faced with unforeseen events, as contingencies are already built in. The risks you should consider are:
Short term unplanned expenses
Start saving towards an emergency fund so that you don’t need to reach for the credit card whenever something goes wrong.
Illness
Even with an emergency fund in place, you may need to consider the longer term. Income protection and critical illness insurance can help to replace earnings and cover additional costs if you become unwell and can’t work.
Unemployment
Keep your skills and CV up to date and keep in touch with people throughout the industry. Make sure you know your rights if faced with redundancy or dismissal.
Death
Make sure you have adequate life insurance and that your Will is up to date.
While these issues are unpleasant to think about, imagine how much easier life will be for your family if you plan ahead.
Think About Debt
Debt is not just the money you owe, it is years of interest compounding over time. It is also money that could be invested for the future. In most cases, it is a good idea to pay off debt as quickly as possible.
Of course, this is not always possible, and in some cases it is actually better to borrow. For example:
- Some credit cards offer long periods with a 0% interest rate. This can give you more time to pay for large purchases, as well as the protection of using a credit card. You may also be able to transfer existing balances. Just remember to clear the balance by the end of the promotional term, or switch to a new deal. And under no circumstances use this card for regular spending.
- Many mortgages now offer very low rates of 2% and below. They may also have early repayment penalties. It often makes sense to keep a mortgage even if you have the means to repay it early.
- Many large purchases, for example furniture or new kitchens, are available with interest free credit. Of course, the cost will be built into the total price, so always shop around.
Funding Your Goals
With the basics covered, you can now start putting your money to work for your future lifestyle. The best option for saving will depend on the goal and when you would like to achieve it.
- Holidays – cash savings
- Home improvements – cash savings or low interest borrowing
- Children’s education – cash savings, term deposits, possibly some lower risk investment funds
- Longer term financial support for children – consider a Junior ISA if you are happy for your child to have full access to the money at age 18
- Retirement – workplace or private pension. Ensure your National Insurance contributions are up to date.
- Other goals – Stocks and Shares ISAs and investment funds
Passing on Wealth
When you have a young family and every penny is accounted for, passing on wealth may not seem like a priority. But there are things you can do now to future-proof your plan.
- Ensure any life policies and death in service benefits are payable into a Trust. This allows easier access for the beneficiaries and the money is not usually subject to Inheritance Tax.
- Make your Will.
- Nominate someone to receive your pension funds in the event of your death.
- Obtain legal advice regarding the best way to structure any business assets.
Every family is unique. Whether you are starting to save for the first time, or creating a succession plan for a multi-million pound business, we can help you protect your family’s interests.
