Planning a secure financial future for your family

What is family financial planning?

We all want peace of mind when it comes to making sure our family and financial future is secure. That’s where family financial planning comes in. Whether you have been managing your finances on your own for years or are new to the idea, a financial adviser can be an invaluable resource for families. Let’s take a look at what a financial adviser does in more detail.

How can a financial adviser help?

When we need help with our teeth, we go to a dentist, and we go to a mechanic when we need help with our car, yet many of us don’t seek professional help when it comes to managing our money. Like dentists and mechanics, financial advisers are trained specialists who can not only help you manage your family’s finances today, but also help you strategise to ensure security and financial wellbeing in the future. Whether you are newlyweds or have already started a family, the sooner you start to prepare for your family’s future, the better. From building an emergency fund, to saving for education, to saving for retirement, financial advisers can become valued partners in your family’s lifetime financial journey. We’ll take a closer look at some of these important saving strategies next.

Saving for an emergency fund

What would happen if you were suddenly unable to provide financially for your family? Imagine if you lost your job, or someone in your family needed private medical care, or your home needed major repairs. 

It’s tempting to think “it won’t happen to us” or “we’ll worry about that if it happens”, but the truth is that one large financial shock can derail your family’s security indefinitely. We can’t predict when life will throw us off course, so putting money aside in preparation for the unexpected makes good financial sense.

Benefits of saving for an emergency fund
So, let’s imagine that the unthinkable happened, and you lose income for a few months, or you need to find a large sum of money to pay for an unexpected bill. If you don’t have savings to draw from, what are the options? 

If you are fortunate, you might be able to borrow from a family member or friend, but for many of us, the only option is to take out a bank loan or use credit cards. By doing this, you are not only in debt for the initial sum needed, but also for the additional interest added to the loan by the bank. High interest loans and credit card balances can take years or even decades to pay off, and you can end up paying thousands more than the initial sum you borrowed. In contrast, your emergency fund savings can earn interest the entire time you have it in an account, and it is ready to use if you ever need it.

How to save for an emergency fund
The amount of money you should have in an emergency fund depends on how much money you need to cover your essential expenses each month, and how many months of those expenses you want to be able to cover in case of an emergency. 

Determine how much you need
Saving enough to cover your essential living expenses for at least three months is generally considered prudent. For example, if you spend £2,000 on essential expenses a month (including rent or mortgage payments), plan to set at least £6,000 aside. Of course, the more you can save the better.

If you aren’t sure exactly how much you spend each month, review your bank statements and receipts for the last three months to find your average monthly expenditure. Don’t forget to factor in essential costs such as food and petrol, as they can add a few hundred pounds a month to your expenses. Then create a budget to work out how much you can set aside each month for your emergency fund. 

Start saving
Even if you are unable to save much towards your emergency fund each month, don’t be discouraged. It might take a while, but even a small emergency fund is better than nothing at all. 

It’s a good idea to create a separate bank account for your emergency fund so you aren’t tempted to use the savings for other expenses. Consider scheduling an automatic transfer to your bank on the day you get paid so that you don’t “see” the money going into your savings account (just make sure that your money isn’t locked in a savings account or invested - you need to be able access your savings quickly in case of emergency). 

Keep it topped up
When we suffer a financial setback, it can take us a while to recover both financially and emotionally, but it’s important to get back on track. If you do need to use your emergency fund, make a plan to save and replenish it as soon as possible. Also, it’s a good idea to reevaluate your needs every year or so. If you acquire additional expenses, your financial adviser can help you to reevaluate your emergency fund strategy. 

Saving for education

If you are planning to send your children to university, it’s a good idea to plan financially while they are still young. This year, university tuition can cost up to £9,250 annually, and living expenses can add several more thousand pounds to that amount. A financial adviser can guide you through options to prepare and save for the cost of education. 

Benefits of saving for education
Saving for a university education has several advantages. With cash available to pay for tuition, students can borrow less from student loan programs and reduce the amount they will need to pay back after graduating, as well as reducing the sum of interest on the amount borrowed.  

With savings in place, the burden on families to find money when their children start university is reduced, and it avoids potentially dipping into retirement funds or other savings. It also provides more flexibility because students aren’t constrained to opt for a less expensive university because of a lack of finances. Finally, students with enough savings have the option to focus on their studies without needing to work, alleviating pressure and stress.

How to save for education
There are several factors to take into consideration when planning to save for education, such as how much time you have before your children will be of university age, where they want to study, and the length of the degree they will pursue.

Determine how much you need
Start by researching tuition in universities. Even though the maximum tuition cost for public universities is currently £9,250, some may cost less, whereas private universities can be more expensive. Then, factor in living expenses such as accommodation, books, food, transport and personal expenses. These costs can vary considerably depending on location, but a rough estimate is between £9,000 and £12,000 per year. 

Multiply the annual tuition and living expenses by the number of years of the degree (usually three years, but some are longer), and you will have the total amount needed. If your children are far away from university age, you might also need to consider inflation in the calculation. Historically, education costs increase 2-4% annually. 

If all this seems daunting, talk to your financial adviser for advice on how to plan saving for education.

Start saving
The way you save for your children’s university costs depends on how long you have until the money is needed. If your child is due to start university within the next few years, it’s better to go with cash savings. This way, the money is available when you need it, and there is no risk from relying on investing. 

If you have five to ten years, ask your financial adviser about optimal long-term investments for children such as Junior Individual Savings Account (JISA) or Child Trust Funds, which offer tax-free savings. Both offer either cash or stocks and shares accounts, and you can invest up to £9,000 per child per year. A parent or legal guardian must open the account, but anyone can pay money into it after that. The funds become available to your child when they turn 18, and they can spend it however they want.

Saving for retirement

When we are busy taking care of our family and daily life, we might not have time to think about what our lives will be like in later years. However, it’s never too soon to start imagining how we will spend our time in retirement, and what steps we need to take now to ensure we have the financial future we desire.

If your plans for retirement include travel, home improvements and leisure activities, you might need more than the State Pension, which is currently £221.20 a week at the full rate. A general rule is to try to save around 15% of your annual pre-tax income if you start saving when you are younger. If you start saving later in life, you will have to save more to match that standard.

Benefits of saving for retirement
Saving for retirement allows you to make the most of your time when you stop working. It provides peace of mind and alleviates potential strain on children or relatives who might be tasked with taking care of you in old age.

How to save for retirement
There are several factors to take into consideration when planning to save for retirement, such as how soon before retirement age you are starting to save, how much you will need to live on, and the availability of any private pensions in addition to the State Pension. 

Determine what you need
Apart from deciding when you want to retire and how much you will need to live on, you also need to consider if you will continue to work part-time or have some other kind of income. You might need more income at the beginning of your retirement when you are more active. Then, as you slow down you may need less funding. In later retirement, you could require more funding if long term care is needed. Your financial adviser can help navigate this process by evaluating if your existing capital is sufficient for your potential changing income needs.

Start saving
As with the other saving scenarios we have talked about, the sooner you start saving for retirement, the better. Talk with your financial adviser to discuss which options for retirement savings make the most sense for your situation. 

One of the most popular options is to save into a pension scheme. One benefit of pension schemes is that you can claim some tax back on your contributions while earning interest on your savings. Also, your contributions are made from pre-tax income which reduces your taxable income and increases your overall savings. You can start contributing any time, but the funds aren’t available until you turn 55. 

Most employers are required to offer a pension scheme and automatically enrol eligible workers. The benefit of work pension schemes is that your employer also contributes to the fund, so you are receiving pre-tax contributions from your employer in addition to your own contributions. You are allowed to opt-out of work pension schemes, but it’s a good idea to take advantage of them.

Apart from pension schemes, you can also use an Individual Savings Account (ISA) to save for retirement. The limit for each ISA is £20,000, and there’s no income tax, dividend tax or Capital Gains Tax (CGT) to pay. You are allowed to have both pension and ISA investments, but keep in mind that both can fall in value as well as rise since both savings plans are dependent upon fluctuations in the stock market.

As with saving for your emergency fund, try to automate contributions to your retirement savings account(s). This ensures that you are saving consistently without having to remember to transfer funds.

For help with planning your financial future, contact us today.