Family Financial Planning
Family financial planning is one of the most important considerations in the early part of your financial life cycle.
Ensuring that adequate provision is in place for yourself, your spouse and your children is one of the most rewarding, but also one of the most challenging aspects of family finance. The key is to realise that there are various strands that must be drawn together, to form a rounded family financial plan.
At Principle First, we consider the needs of the family unit as well as the individuals, when offering family financial advice.
To discuss your family’s financial needs please submit an online financial advice enquiry or call us on 0800 678 5929.
Family Financial Planning - Life Insurance
When building life insurance into your family financial plan, we take a very practical view which aims to replace lost income so that the family’s lifestyle would not suffer, were the worst to happen. This might be based on an insurance payout which could be invested to replace the salary that might be lost. For example, we may calculate on the expectation that an investment could reasonably yield or pay out 5% per annum. On that basis, an investment of £400,000 would be right to cover a lost salary of £20,000 per year, as £20,000 is 5% of £400,000. We would also recommend that the life cover element of a person’s family financial planning should clear any outstanding mortgage liability. If that person had £85,000 due on their mortgage, then their total life insurance cover should ideally be £485,000, to prevent any fall in the family’s living standard.
Family Financial Planning - Critical Illness and other Insurances
There is a 1 in 4 chance that a family’s main breadwinner may see their working life cut short through critical illness. A good family financial plan should make provision for this too. Critical illness cover pays out a lump sum if you are affected by one of the health conditions covered in the policy. At Principle First we recommend taking critical illness cover that would finance two years off work, not just for one but for both spouses – as often, the second must also give up work to become the carer for the first. A good calculation is to take critical illness cover equal to 2 years of total net salary of both spouses together.
Other insurances that sit well in a rounded family financial plan include income payment protection insurance, which provides a replacement monthly income for 1 or 2 years in the event of illness, and accident, sickness and unemployment (ASU) insurance, which does the same but with the valuable addition of covering involuntary redundancy as well. Mortgage payment protection insurance is another insurance providing regular monthly payments, this time specifically to cover your mortgage costs, for an agreed term.
Family Financial Planning – Children’s Stakeholder Pensions
Someone once said that having a child is to forever have part of your heart walking around outside your body, and the clients of Principle First certainly seem to agree with that. Much of our demand for family finance advice focuses on the specific area of investing for, and securing the wellbeing of, our children. The good news is that many options are available for building this into your family financial plan.
Many people are not aware that new laws introduced in 2002 made is possible to open a pension plan for your child. This may sound bizarre, as we tend to associate pension saving with our later decades, but a child stakeholder pension can be the greatest gift you can give your child. Imagine providing them with the peace of mind that, thanks to you, they are already provided for in their old age. The figures show why a children’s pension can be such a good use of the money you can allocate to your children. Let’s assume that you, as a parent or grandparent, save just £25 per month into a pension plan for a newborn child, until that child turns 21. Then you stop saving, and make no further contributions. By the time your child reaches 60, your total outlay of £6,300, assuming typical historical levels of stock market growth, will have reached a staggering £1.4m, due to the power of compound interest within the fund. You will have made your child a millionaire!
And as a bonus in the meantime – thanks to your family financial plan, your child has enjoyed a working life free from worries about providing for their own retirement.
Get more information and advice about saving for your children’s future – complete a financial advice enquiry or call 0800 678 5929
Family Financial Planning – Children’s Savings Accounts
A range of children’s savings accounts are available which bear interest tax-free, once you as parents fill in an R85 form from the Revenue for each account. Or you may wish to include an offshore bond for your child in your family financial plan, which will mature when your child is 18 and can be cashed in in such a way that tax is minimised.
A third family finance option for when your child turns 16 might be to open an Individual Savings Account (ISA), which will give them tax-advantaged savings either in cash, or in stocks and shares. The tax advantage of the ISA makes it an attractive alternative to the traditional bank or building society account, as part of your family financial planning.
