Financial planning: how to best prepare for your family
6th Jan 2024 Managing your Money
5 min read
Raising a family can be difficult and costly but ultimately very rewarding. While financial planning for your family sounds intimidating, it’s easier than you think as you know what the key milestones will be.
We look at how to best plan for each milestone,
whether it’s the birth of your first child or your youngest leaving the nest.
Make a will
As soon as your first child is born, it’s
essential that you make or update your will to protect them in the event of your death.
You should update your will for each child that
you have.
Build up savings for your children
When it comes to savings, children have time on
their side.
You should open a Junior ISA (JISA) for your child as soon as possible, paying into it
regularly if you can.
Thanks to compound interest, which is interest
you earn on interest, over the years, you can build a substantial nest egg by
the time your child goes to university.
You can choose from a cash or a stocks and
shares JISA.
It’s a good idea to talk to a financial adviser about which type of JISA is right for you.
Cash is often seen as the safer option, but
your money can be eroded by inflation.
A stock and shares JISA can deliver greater long-term growth, especially if you leave the
money untouched for a long time, although there are some risks to consider.
Some parents look even further ahead and set
up pensions for their children.
While this is an unusual approach, it can
deliver some impressive results for those who are willing to wait.
Image souce: Photo by Andrea Piacquadio at pexels.com
Saving for your child’s education
As soon as your child is born, you know they
will be starting secondary school in 11 years’ time – and this time can fly by.
A fixed milestone like this is useful for
investors as it gives a definite target to work towards.
Remember that even state-funded education can
be expensive as you have to cover uniforms and school trips, so it makes sense
to start building up a ‘school fund’ as early as you can.
Similarly, you should look at setting up investments to help fund your child’s university or college education.
This is considerably more costly, but you have
much more time, so you may not need to pay in as much as you think.
Whether you’re saving for school or university, a financial adviser can recommend the right investments, so your money can achieve maximum
growth and is ready when you need it.
Find out more about saving for your child’s
education.
Should you extend your home or move?
One of the big costs of having children may be the need for more space as the more kids you have, the more
rooms you’ll need.
Long-term planning is vital. You should think
about how many children you want as you don’t want to often move.
Location is also key as you may want to
consider school catchment areas.
Ideally you should be looking for your home for
at least the next 10 years, so talk to a mortgage broker to see how much you can
safely borrow.
If you love your home but need more space, an extension
may be an option. Remortgaging can help you free up the funds for any work.
An adviser may be able to find a deal that
lowers your repayments or keeps them the same, so you can add space and value
to your home without any immediate extra costs.
Financing higher education
If you’ve invested in your child’s higher
education, then you should monitor your investment portfolio carefully in the
last few years and consider safer assets.
A financial adviser can help you with this strategy.
If your child also needs a student loan, this only needs to be repaid once they start earning a certain amount.
Paying off a student loan early is not usually recommended,
so a lump sum may be better used in savings or investments.
If you have the money, one way to help your
child is to buy them student accommodation as they could rent out other rooms to pay the mortgage and save on
their own living costs.
The property itself may also become a
useful investment for the future.
A mortgage broker can help you find the best deal for your
property.
If your child will soon be leaving the nest,
they may find our guide to leaving home for the first
time useful.
Helping your child buy their own home
One of the biggest steps of being a parent is helping
your child buy their first home.
This is more difficult than it used to be due
to soaring homeownership costs and higher property prices, so young people are
likely to need additional help.
There are many ways to help your child get a mortgage, which do not involve handing over large lump sums.
You might even be able to help them onto the
housing ladder while they’re at university, and squeeze extra value from the money spent on education costs.
It’s a good idea to talk to a mortgage broker or independent financial adviser about the best way to help your child buy their own home.
Image source: Image by Drazen Zigic on Freepik
Managing family inheritance
You should ensure your will is updated regularly to make sure your family is taken care of
after your death.
As you enter later life, you should think more about inheritance planning, and whether or not your family will be
exposed to inheritance tax in the event of your death.
This kind of planning is continuous, so talk to
an adviser while you still have many healthy years ahead of you.
With advice and planning, you can manage your
estate to minimise any future inheritance tax bill.
Find out more about later life planning.
When a family member dies
A death in the family is always a major
upheaval. Not only is it an emotional time, it can also have a big financial impact, particularly if the person who died was the main or sole earner.
If you have a mortgage, you should make sure you
have life insurance to pay off the loan, if one of the mortgage holders dies.
You will also have to arrange the funeral for
your loved one and decide how you want to commemorate them.
Finally, you will need to find out what bereavement benefits you may be eligible for.
If you’re feeling overwhelmed by financial
planning, you’re not alone.
Unbiased can match you with a local financial adviser who can guide you through the process to ensure your loved ones are
taken care of in the event of your death.
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Banner image credit: Photo by Andrea Piacquadio at pexels.com