Updated 03 December 2020
With Christmas only a few days away, Jason Witcombe looks at how to make sure your family avoids a festive financial hangover that carries on well after the New Year.
Think about how much time you spend planning Christmas or organising your summer holiday. Then, consider how long you spend planning your familyâs finances. Is there a mismatch here? For most people Iâm sure there is.
“Without clear, and shared, aspirations there is a real risk that you look back in 10 yearsâ time and say: ‘If only we had…’â
It is entirely understandable that many of us are turned off by personal finance and that difficult financial decisions are put off for another day. Reading holiday brochures and decorating the Christmas tree is simply more appealing.
Financial Planning is a six-stage process which is described below. Itâs easy to jump into stage five and want to implement things straight away â get a pension set up and sort out your investments – but this would be a mistake. From my experience, it is quite rare for couples to have an honest and open discussion about what they want out of life, both for themselves and for their children.
But without clear, and shared, aspirations there is a real risk that you look back in 10 yearsâ time and say âIf only we had…â
How often do we hear this sort of complaint?
âHe/she works too hard and never helps me with the kids â itâs not fairâ
âIâm in a job I donât like, I work too hard and never get to see the kids, but Iâm stuck because we need the money – itâs not fairâ
âHe/she spends too much money – itâs not fairâ
âHe/she wants to put too much into pensions and investments, but I want a new car instead – itâs not fairâ
âHe/she wants to send the kids to private school but Iâve now got to work an extra 10 years to pay for it – itâs not fairâ
âHow can they afford that house/holiday/new car and we canât?Â – Itâs not fairâ
Financial planning is about creating a long-term, coherent strategy for you and your family. It is about giving you peace of mind that you are âon trackâ and doing all the right things with your finances or about trying to change the direction to your finances if you arenât. Itâs about helping you make the most out of the present while also preparing for the future.
The financial planning process could be summarised as:
1. Personal/family goals – itemise the things you and your family want to achieve in life â is it all about the money, or is there a work/life balance to try to plan?
What would constitute a life without regrets?
2. Current position: look at assets, liabilities, income and expenditure as well as other aspects like health and your risk tolerance. Do you have a will in place? Do you have life assurance?
3. Financial analysis: how far away from achieving your goals are you? What would it cost to achieve them?
4. Create a plan: what actions can you take to get you on track?
5. Implement: this is often the stumbling block but if action is needed, thereâs no time like the present to get started.
6. Review: things always change so adjustments will be needed â review at least annually.
Yes, families should have sufficient life insurance, have a valid will and make sure that the householdâs expenditure is at least partially protected were the breadwinner to be unable to work but beyond that there is no such thing as a one-size-fits-all family financial plan because we all want to lead different lives.
So, the best advice I would give a couple is to be honest with each other about what they want out of the rest of their lives. Write it down. Take each otherâs dreams and aspirations seriously.
You can then put a cost, whether a financial cost or a time cost to each of these and you have the beginnings of a financial plan.
Call it the Household Happiness Plan!
Then you can move onto stage two. Speak to a independent financial adviser to make sure your family’s finances are tiptop in 2014.