By James Wade CFA, Head of Financial Planning and Investments, Charles Wade Finance.
I have two boys (aged 2 and 4) so this area of financial planning is very familiar territory for me. To bring things to life I have summarised what my wife and I have put in place in the areas I cover in this article – of course everyone’s requirements are different, and this is not to be taken as advice.
A regularly updated financial plan is important but even more so at what will likely be the single biggest change point in your life; starting a family. Your free time will be a thing of the past and whereas before you may have previously adopted a rather more care free approach to your finances the ‘game’ has now changed and it’s time to ensure first and foremost your family is protected. This article focuses on what I consider the ‘musts’ for review and action – of course there are many more, but everyone’s financial plan should be built on solid foundations.
A brief introduction
Charles Wade Finance is an established, independent financial advisory and investment management company providing a personal, high-quality service for individuals, trusts and small businesses.
1. Have an up to date will
A properly drafted Will is one of the most basic yet important legal documents that every adult should have (over 60% of people don’t). For parents of young children this becomes even more vital.
Without a Will amongst other things:
• You cannot be sure those you would wish to benefit will actually do so.
• Your spouse/civil partner will not automatically inherit all of your Estate.
• An unintended inheritance tax bill may be created.
• ‘Common Law’ partners may not receive anything.
• Minor children could be taken into care while Guardians are appointed.
For those who want to take further steps to protect those assets from potentially negative events in the future, the use of Trusts is required.
Our own planning:
My wife and I have mirror wills, have appointed guardians (and asked them!) should they be required, and have trusts set up to protect the family bloodline from potential threats in the future and for tax efficiency. We both hold Power of Attorney for each other so in the event one of us becomes incapacitated the other will not have restrictions placed upon them in dealing with the family finances. For myself as a business owner having Power of Attorney in place is essential.
2. Review your existing protection policies
There is no ‘perfect number’ as to the amount and type of protection policies that you should have in place- it is very much driven by individual circumstances and available budget. A key consideration should be what will be lost (in monetary terms) in the event of an adverse event, and the impact this may have (having to sell the family home and move, pulling children out of fee-paying schools etc).
Another thing not to be underestimated is insuring the primary carer. Whilst they not be providing a large proportion of the family income the consequences of something happening to them can be just as damaging financially. Something happing to one partner will likely impact upon the others ability to work and therefore provide an income for the family.
Many employers provide protection polices as an employee benefit, but these are rarely tailored to the level and types of cover you actually need, and are just a pre-set amount normally calculated as a multiple of your basic salary.
First port of call is to check what work place benefits you have to see if and where you may have shortfalls. As well as having enough cover I would also recommend policies be written to trust (where possible) for protection and tax reasons – something most non-advised people would not consider.
Our own planning:
I am the main earner in our household and prior to the children I had life cover up to the amount of our mortgage, so in the event of my death my wife would be able to stay in the house, using the policy pay out to pay off the mortgage balance. She had a smaller workplace policy. We were happy with this.
With the arrival of children this changed, and I have in addition to my previous cover an amount equal to 10 times my basic salary. My wife has additional protection to cover our mortgage should something happen to her. I am able to take out what is called a Relevant Life Policy which is a very tax efficient way of writing life assurance for Limited Company business owners- premiums are paid from the business and are treated as an expense so reduce the amount of corporate tax due.
I also have 2 years’ worth of Critical Illness cover which includes a degree of cover for the children should they get ill. All our policies are written to trust.
3. Understand your incomings and outgoings
My final recommendation is to properly understand what your incomings and outgoings are. Both can change dramatically with the arrival of children and it’s easy to lose track. Once you properly understand this you can start making meaningful long-term plans, whatever they may be. Everyone will be different but our basic costs and direct debits ignoring mortgages payments have risen from £900 per month to £3,500 since the boys arrived!
I hope you found this article useful and if you would like to discuss any area of your financial planning with us simply complete the box and we will be in touch, James.
All information provided in this article was done so by CWF.
Charles Wade Finance is a trading style of CW Executive Finance Ltd is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority
Registered Address: Unit 29, Northampton Road, Blisworth, Northamptonshire, NN7 3DW
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