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Financial planning for your family

Introduction

Raising a family is a marathon effort, as costly as it is rewarding. But financial planning for your family is easier than it sounds, because you know what the key milestones will be.

Here’s how to plan effectively for each one: from the birth of your first, to your youngest leaving home – and beyond.

Making a will

First things first: as soon as your first child is born, you need to make or update your will to protect them in the event of your death.

Continue to update your will for each child that you have to ensure there are no complications.

Children's savings

When it comes to saving, children have one very important advantage: time.

You can take out a junior ISA (JISA) for your child as soon as possible, paying into it regularly if possible.

Compound interest over the years can build it into a substantial nest egg by the time they leave school.

JISAs are available as both cash and stocks and shares. Talk to a financial adviser about these options.

Cash is often seen as safer but can be eroded by inflation if interest rates are low. Stock and shares can deliver greater long-term growth, especially if you plan to leave the money untouched for a long time, but it can be risky. 

Some parents look even further ahead and set up pensions for their children. This unusual approach can deliver some impressive results – for the very patient!

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Saving for education

As soon as your child is born, you know they will be starting secondary school in 11 years’ time.

A fixed milestone is an investor’s best friend as it gives you a definite target to work towards.

Remember, even state-funded education can be costly, with expenses such as uniforms and school trips to cover, so it makes sense to start building up a ‘big school fund’ as early as you can.

Similarly, you should consider setting up investments to help fund their university or college education.

This is considerably more costly – but you have much more time, 18 years or more, so you may not need to pay in as much as you think.

Whether you’re saving for school, university or both, an adviser can recommend a portfolio of investments designed to deliver growth within each fixed timeframe, so the money can achieve maximum growth and is ready exactly when you need it.

Find out more about saving for education.

Growing families - upsize or extend?

One of the big ‘hidden’ costs of having children may be the need for more space. The more kids you have, the more rooms you need, especially if you have both boys and girls.

Long-term planning is crucial here. Consider how many children you hope to have as you don’t want to move every time.

Location is also key; once you might have cared about being close to good nightlife, now you'll likely care about school catchment areas.

Ideally, you want your home for at least the next 10 years, so talk to a mortgage adviser to see how much you can safely borrow.

If you love your current home but need more space, extending may be an option.

Remortgaging can free up the funds you need for this.

Sometimes a mortgage broker can source a deal that lowers your repayments or keeps them the same so you can add space to your home without any immediate extra cost.

Financing higher education

If you’ve invested in your child’s higher education, then monitor this portfolio carefully in the last few years and perhaps move it into safer assets (such as cash). An adviser can help you to time this right.

If your child also needs a student loan, this only needs to be repaid once they reach a certain level of earnings.

Paying off these loans early is not usually recommended, so a lump sum may be better used in savings or investments.

If you have the funds, one way to help your child may be to buy student accommodation. They could rent out other rooms to pay the mortgage and save significantly on living costs.

The property itself may also become a useful investment. A mortgage broker can help you determine whether this would work for your child.

Your child might like to check out our guide to leaving home for the first time.

Helping your children buy homes

One of the last big steps of being a parent is seeing your child set up a home for themselves.

This is a lot more challenging than it used to be, so most young people are likely to need parental help.

There are many ways in which you can help your child get a mortgage which does not involve handing over large lump sums.

You might even be able to help them onto the housing ladder while they’re still at university and squeeze extra value from the money spent on their education..

Talk to a mortgage broker or independent financial adviser about the best way to help your child find a home of their own.

Sorting out family inheritance

You should have kept your will updated regularly to ensure your family is taken care of.

As you enter later life, start to think in more detail about inheritance planning and whether your family will be exposed to inheritance tax in the event of your death.

This planning is ongoing, perhaps lasting a decade or more, so talk to an adviser when you still have many healthy years ahead.

With advice and forethought, you can manage your estate to minimise any future inheritance tax bill.

Find out more about later life planning.

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When a family member dies

A death in the family is always a major upheaval. Besides being an emotional time, it can also have a significant financial impact, particularly if the person who died was the main or sole earner.

If you have a mortgage, you should ensure you have life insurance in place to pay off the loan if one of the mortgage holders dies.

On a personal level, you will 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 to support you in your changed financial situation.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.