Financial Planning for Parents
Before becoming parents very few of us actually think about financial planning properly. Yes, we all have friends that were great at saving when perhaps others were not so good. We may well have started a pension with our first salaried job but when the kids arrive it all takes on a much more serious angle. It is no longer about having some cash for a holiday, it suddenly becomes about money for their first car, house, tuition fees or fun things like travelling. It also becomes about what we will be leaving behind when we are gone and almost more importantly how our retirement will shape up in terms of not being a burden on the kids. Not exactly cheerful tuff for the most part but getting prepared for it is actually a really positive experience and can reduce a stress that hasn’t quite manifested itself as a conscious worry yet.
So here are a few top tips for financial planning for parents both new and…well less than new.
OK so let’s get the really miserable ones out the way, first shall we? It is a pretty sure thing your children will be very sad when you shuffle off this mortal coil. It is not a time anyone would be very happy about but one thing that can make it a lot worse is having to plan and organise a funeral. But there is another level to this that is even more stressful, not only is planning it all very hard but having to pay for it all can really pile on the pressure at a time when grief should be the focus. This is where a funeral plan comes in. It is basically a financial product where you agree and plan a funeral and then pay for it as a lump sum or by monthly payments. The upshot of it is that when you pass away your next of kin notifies the company and the whole process is looked after and paid for already. Minimum stress and worry for your loved ones and you can rest assured you get the funeral you wanted. Beware though, as with all financial products there are good ones and bad ones. The Funeral Planning Authority is the regulating body for this kind of thing, and it is highly recommended you only use registered providers.
Sorry, another depressing one but another very important one. As soon as you have a child you should have a will. You should also remember to update that will if you have another child. It is really important to make sure that you have stated legally how you wish your estate to be handled and this can include stating who you wish to look after the children. Writing a will these days doesn’t have to be expensive either — check out this guide here.
No, this isn’t about a piggy bank or even a normal bank account. Setting up something that really will yield when they are older can give them a great head start in adulthood. A junior ISA is a really strong way of doing this. If you start one as soon as they are born and pay a little in each month by the time they are 18 it should have a pretty impressive sum in it. There are different types of junior ISA some use cash and other use stocks and shares. It is best to do your research here because they both have good and bad points and different levels of risk.
Kids cost money; this we know from even before they are born when we look at the price tag on that first buggy! But the more we have the more financial pressure there is. While the actual cost can drop with each new child because you can reuse things over all the burden increases. There is no right number of kids, but planning based on income and desired living costs is important. If you are on a average wage then 7 kids will invariably mean less money to go around. Each family has its own equations and ideas of this but a discussion about it can be very useful. Even the cost of a larger house to give them all a room can change the numbers hugely let alone food, gifts, school trips and the like.
- Pensions, Savings and Property
This one is for the parents and not the kids but the knock-on effect will play a big role in the kids lives as adults. By planning well for retirement, we can reduce the burden we put on our kids and leave them to be financially independent from us and us from them. Pensions have their risks, so it is worth perhaps thinking about ISAs and other saving options to run alongside any kind of workplace or private pension you have. Also, remember your home, if you own it, can also play a big part here. You may have a larger home that most people would think to sell and downsize as they get older. But it may also be worth looking at letting it out as an income generator and using that money to rent your retirement property by the sea! It means you can move around easily if you wanted to or you perhaps needed to, and you will always have an income.
Do you want to retire in comfort and have the money to do what you want or need? If so, turn to your home to help. Applying for a reverse mortgage on it can allow you to spend part of the equity when you need to. That could be to cover a one-time expense or it could be to help you pay regular living costs. When noting reverse mortgage benefits and drawbacks, you should know you can select monthly reverse mortgage checks or opt to receive one payment. You can even draw from the available funds as you would a credit card, if you prefer. The reason a reverse mortgage is perfect when you retire is you also can spend your received funds freely for years. There is no obligation to stick to a strict payment schedule such as you would have when taking out a regular mortgage on your home.
This is a big subject but one that deserves plenty of thinking time, chatting and planning!
Guest Article. Contains a sponsored link.