Map Out Your Family Finances
Financial Health Check – Map Out Your Family Finances
Information, tips and guidance to help working mothers map out their finances
By Natalie Wright – Mazars
Whilst women are increasingly better educated than men, on average they are earning less, face longer periods of unemployment, feel less financially secure, provide the majority of unpaid care to children and older generations, accrue smaller pensions and live longer. This means particular emphasis needs to be given to women to help them plan their financial future, as well as prepare and protect against the potential risks they face.
• Family protection – how would your family survive financially if you or your partner were no longer around, or unable to work due to illness or injury?
• Retirement planning – how much should you be saving?
• Savings – how much can you commit on a monthly basis to meet your financial goals?
• Investments – don’t let existing investments fester without reviewing them, no matter what the value you need to make your money work hard for you!
• Mortgages, loans & other debts – do you understand the interest you are paying on your debts and could they be better structured?
• Wills – is the reality of what will happen to your family’s wealth in the event of your death actually in line with your expectations?
• Allowances & reliefs – are you making the most of what is available to you?
No-one likes to think about the unthinkable but unfortunately it is a fact of life we have to deal with. Death and serious illness can strike at any time and with the diagnosis of a critical illness now more probable than ever before (it is expected that 1 in 2 people born after 1960 will be diagnosed with some form of cancer during their lifetime), most families are in a potentially vulnerable situation. Shortfalls in protection cover is an area of planning that is lacking most amongst women under 40. The biggest barrier to buying protection is often the perceived cost but the reality of taking out cover is starkly different – most people spend more on a monthly trip to the cinema than insuring their own family’s financial security!
Pension funding: how much is enough?
There is no simple answer to this …… the starting point is to work out a) what will you need in retirement and b) what do you actually want? From there you can work backwards to look at both scenarios. Your ‘needs’ will represent your fixed day to day living expenses and bills, but your ‘wants’ are the additional costs of ensuring you can enjoy the lifestyle you envisage. Once you know how much you need to start saving, you can compare this against your ability to save each month, the number of years until your anticipated retirement and then plan for ways to ‘bridge the gap’ if there is one. The longer you have to save for your retirement, the less you will have to commit on a regular basis e.g. someone paying in 12% of their salary into a pension in their early 20s is broadly equivalent to someone at age 40 receiving the same level of income having to commit 20%.
Why should I invest?
With bank interest rates at historically low levels, keeping high levels of savings in a bank account is no longer a viable option for most people, especially if you want to have the ability to outstrip inflation over the longer term. Understanding both your attitude to risk and your capacity for loss are key components in creating an appropriate investment strategy.
Dying without a valid Will in place means your estate will be distributed according to the Rules of Intestacy. Only married or civil partners and some other close relatives can inherit under these rules, so you could find that on death, assets do not end up with the recipient that you (or your partner) had intended. This becomes an even more complex situation where children are involved, particularly if there are also children from former relationships to consider. Arranging a Will does not have to be a costly exercise, but it will save time, heartache and potentially money after the event.
Free Online Tools
• The Money Advice Service provides an online financial health checker tool which has been designed to help you manage your finances: www.moneyadviceservice.org.uk
• The Personal Finance Society (PFS) have a dedicated consumer website which provides information and tools to help you make informed decisions: www.thepfs.org/yourmoney
• Understand more about the eligibility criteria and your entitlement to certain tax credits, allowances and benefits: www.gov.uk
• The Citizens Advice Bureau provides information to help you make the right choices when managing your debt so you don’t lose out financially: www.citizensadvice.org.uk
Assessing your financial wellbeing on a regular basis helps you understand where you are and where you are going. Having a snapshot of your current circumstances allows you to identify your strengths, as well as understand if your finances need attention, if there are areas for improvement, if you are in control and also give you confidence in your decision-making.
Aim to be proactive rather than reactive to any major events that could impact your financial security!