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 on their side: time. Take out a Junior ISA (JISA) for your child as soon as possible, paying into it regularly if you can. 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 & shares. Talk to your financial adviser about these options. Cash is often seen as safer, but can be eroded by inflation if interest rates are low. Stock & shares can deliver greater long-term growth, especially if you plan to leave the money untouched for a long time.

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!

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 like that is the investor’s best friend, because it gives you a definite target to work towards. Remember that even state-funded education can be very 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 look at 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, uni or both, your adviser can recommend a portfolio of investments designed to deliver growth inside each fixed timeframe, so the money can achieve maximum growth and is ready exactly when you need it.

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. Think about how many children you hope to have – you don’t want to move every time. Location is also key; where once you might have cared about being close to good nightlife, now you care about school catchment areas. Ideally you are looking for your home for the next ten years at least, 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 for some houses. Remortgaging can free up the funds you need for this. Sometimes your adviser can source a deal that actually lowers your repayments or keeps them the same, so you can add space and value to your home without any immediate extra cost.

Financing higher education

If you’ve invested for your child’s higher education (see point 3) then monitor this portfolio carefully in the last few years, and perhaps move it into safer assets (such as cash). Your 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. Unusually, paying off these loans early is not usually recommended, as their interest rates are often below inflation, 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 their student accommodation. They could rent out other rooms to pay the mortgage and save significantly on their own living costs. The property itself may also become a useful investment. A mortgage broker can help you see if this could work for your child.

Helping your children buy homes

One of the last big steps of being a parent is seeing your child set up 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 a number of ways in which you can 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 still at university (see point 5), and so squeeze extra value from the money spent on education costs.

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 or not your family will be exposed to inheritance tax in the event of your death.

This kind of planning is ongoing, perhaps lasting a decade or more, so talk to an adviser when you still have many healthy years ahead of you. With advice and forethought you can manage your estate to minimise any future inheritance tax bill.

Find out more about later life planning.