Your foolproof plan to protecting your family's finances and having no money worries

family finances

Your foolproof plan to protecting your family's finances and having no money worries

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5 minute read

Over a third of working adults report that money woes prevent them from getting a good night’s sleep.

25-34-year-olds are the most likely to be affected, with almost half of this age group having money worries. If you imagine your financial situation will improve with age, it is important to reflect that over a quarter of individuals report having money worries beyond the age of 55.1

Worries about money can lead to stress, which in turn can result in anxiety and mental health issues for some people. Meanwhile, emotional distress can affect your psychological and physical well-being.

This blogs offers a range of tips to help yourself, a family member, or a friend to overcome money worries.

Having a plan in place can make your fears less all-encompassing and make you more empowered. Tim Ferriss has a good TED Talk about defining your fears: here.

Following the eights steps below will help you feel like you’re prepared for anything. At the very least, you will have a plan in place to refer to when the way forward seems unclear.

1) Know your expenditure

Knowledge is power. Knowing your expenditure is one of the most effective, yet overlooked, elements of financial planning. If you don’t know what you’re spending, how can you know where savings can be made, how much you can save towards your goals, or what the effect that an unexpected expenditure could have?

Even simply having an awareness of your spending on household basics, monthly discretionary spending, and any surplus income can be helpful. Be sure to remember annual recurring payments such as a Netflix subscription, car insurance, or MOT. These periodic payments can make you feel stretched and increase your stress levels. If it happens every year, make sure you save a little extra each month to account for it.

2) Pay off debt

Uncovered debt like credit cards and loans should be the focus of increasing your surplus income prior to saving. Having a mortgage (a capital repayment mortgage) is like having a debt repayment plan in place, and similar discipline is required to manage your other debts.

Debt can be overwhelming, but even if you have a five-year repayment plan you at least have a goal in place and can monitor your monthly progress. If you ensure that your repayment is automatic, you won’t even need to think about it.

3) Have a rainy day fund

Millions of people in the UK have less than £100 in savings. In some regions, the figure is as high as 50%, while in London it is 42.3% and in the South East it is 30.1%.2

A rainy day fund can cover unforeseen car repairs, a new washing machine, essential house maintenance, or periods of unemployment. Having this fund in place will make you feel more prepared for the unexpected and ensure that you won’t be caught off guard. A good ball-park to aim for is to have funds for about 3-6 months of essential expenditure, but anything you can set aside will help.

4) Make sure you’re well insured

You insure your car, your house, and your holidays, yet very few people insure themselves. Absence from work due to illness or an accident could result in you finding yourself unable to feed yourself if you don’t have income protection. If this happens, your car, house, and holiday insurance become redundant.

In the UK there are various state benefits you can claim, but these are limited. For instance, statutory sick pay for employees is only £95.85 per week and is only paid out for a maximum of 28 weeks. Personal Independence Payments can be received up to state pension age and are a maximum of £151.40 per week, but would this enable you to save for later life? Or more importantly, could this support you and your family until pension age?

As a minimum you should consider life insurance to cover your mortgage and any costs your partner would struggle with alone. Childcare costs and school fees may be a consideration. Remember that you are more likely to be off work due to long-term sickness than you are to die. Income protection will help ensure that you can carry on paying bills and saving as normal. Critical illness protection could be an additional luxury, but it is worth considering if it’s affordable for you.

You may have some life and income protection through your employer, so remember to take this into account. Also, ensure that the relevant people are nominated to receive benefits. Putting life policies into a trust is also important.

Personal protection can be a complex area of financial planning, so perhaps consider discussing this with a financial adviser.

5) Plan ahead for changes

Moving to a new house, having a baby, adopting a child, marriage, or a career change are all occasions that could disrupt you perfect plan. Where possible, plan to save for such eventualities and changes to account for the extra expense. Nonetheless, these are planned changes – but what about unplanned changes? The prospect of redundancy is an unforeseen emergency, and in this instance your rainy day fund would come into play. Ensure that you plan sufficiently for the life-affirming effect you’re envisaging rather than the change becoming an additional stress point.

6) Consider your pension saving

It is prudent to consider steps 1-5 before making any investment or saving. But auto-enrolment rules mean that it may be mandatory for you to be enrolled onto a pension scheme through your employer, so this part of your plan might already be underway. Under auto-enrolment rules, from the 6th of April 2019 your employer’s minimum requirement is a 3% contribution of your qualifying earnings and a minimum total contribution of 8%, meaning you must make up any shortfall between what your employer pays and the required minimum. For instance, if your employer pays 3%, you are required to pay 4%, while the government adds an additional 1%. If your employer already contributes 8%, you may not need to do anything. Your employer can confirm the rules under its own scheme.

This is where additional pension saving can come in. Most people aged over 30 should be saving double-digit percentages of their income towards their pension. One question people often ask is whether they should save into an ISA or a pension. The answer is subject to personal circumstances based on your age and priorities. In the main, the tax relief added by the government and the fact that most people do not save adequately for later life means you should prioritise a pension. This is especially true if your employer offers to match your contributions.

7) Then consider an ISA or other savings plan

Once you are happy with your pension savings, you can consider other shorter-term options. ISAs are instantly accessible, so ISA savings can be useful for non-retirement goals. They are also useful for later life since withdrawing money from them comes with no tax implications, thus helping to simplify your tax affairs.

You should aim to have a simple, well-diversified investment plan for your investment savings. Your plan shouldn’t need changing each month or even every year. When discussing his company Berkshire Hathaway, Warren Buffet explained that “Our favourite holding period is FOREVER”. You want a set-and-forget investment strategy.

This doesn’t mean your overall plan won’t change and you don’t need to do anything. Make sure to review your goals and needs regularly, as well as those of your family. Also, ensure that you make use of your annual pension and ISA savings allowances. It can take quite a bit of practice and diligence to get the hand of this saving habit, but it becomes a good habit over time.

8) Look after yourself first

Make sure you put on your own oxygen mask before helping others; you can’t anyone else if you are on financial life support. Ensure you are in a good place financially, and ideally work through steps 1-7 first.

Once you have, you can start thinking about saving for your children or other family members requiring assistance. When you are in a healthy financial position, you can begin exploring things like Junior ISAs, junior pensions, and trusts. These can be valuable and may be able to pay for things like school and university fees.

In the case of a pension, you can give your children a much-needed leg up. From the year your child is born, you can save up to £3,600 into a pension annually. Of this money, £720 comes from the government (i.e., you pay in £2,880 and the government adds £720). This means that by their 18th birthday, your child could have £96,000 in their pension already. What’s even better, is that £44,160 of this will not have even been funded by yourself!*

If you are worried about missing out on saving for your child’s future, or perhaps their grandparents are in a financial position to help out while you’re getting your own savings organised, consider opening a junior pension for them.

If you would like to speak to a financial planner about how you can protect your family's finances, contact us today.


*Assuming a 4% growth rate, money paid annually from the day they’re born to their 17th birthday.

Trusts are not regulated by the Financial Conduct Authority.

1) Debt and mental health in the workplace report

2) Millions have less than £100 in savings, study finds

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