Financial planning for life

Throughout life, from childhood to retirement, circumstances and priorities change. At every stage it is important to make well-informed decisions to ensure that you and your family are following the best strategies for achieving your goals.

Childhood

It is never too early to begin planning for a child's financial future. Parents, grandparents, and other relatives can assist in the early years by providing funds for the child's education and future. This may, for example be through direct gifts, or by making payments into a Junior ISA.

Children should be educated in handling money responsibly. Budgeting can start with knowing that if you spend your pocket money on one sweet, you cannot spend it on another, and when you have spent it all there is no more money left until next week.

The teenage years

The teenage years are an important time to learn the ins and outs of budgeting and financial planning, as children begin to earn money for the first time, and save to buy things such as sports, hi-fis, and other technology equipment. It is during the latter teen years that managing finances independently will start if living away from home and attending University. Managing a budget, bank account and loans becomes part of everyday life for University students.

Young adulthood

With University education complete and hopefully a job, now is the time to develop a plan that allows financial reality to be accommodated, including student debt repayment which is automatically deducted from salary or payable through self assessment. These are often also the years when it is time to make provision for the purchase of a car and to plan for the purchase of a home. While it is probably way down the list of any financial priority it is also the time to start investing for retirement, even though retirement is a long way off and the initial investment may be modest. A small sum put away now for retirement has much longer to grow.

Settling down

You may now be looking to move from renting to buying your first home. You need to save for the deposit and furnishings, and you will need to budget for the mortgage repayments and other household expenses (e.g. insurance, council tax, repairs and utility bills that are an inevitable part of home ownership).

This is often the most difficult financial period. Budgets are tight, as the mortgage repayments account for a large proportion of disposable income. It is important to prepare detailed budgets, which should always include an amount for contingencies for unexpected or one-off expenditure.

New parents

The imminent arrival of your first child, with the extra responsibilities and perhaps the need for more space, should trigger a re-evaluation of your personal financial strategies. One insurance company estimates that it now costs more than £230,000 to bring up a child to the age of 21.

The arrival of a child can mean moving from two incomes funding two people to one income funding three. Alternatively, it can mean funding childcare so that both parents can work. Although employers may provide a workplace nursery or childcare vouchers, these never cover the full cost of childcare.

Of the £10,000+ a year it costs to bring up a child, the maximum you will receive is £1,076.40 in child benefit (£712.40 if a second child) and £2,860 (per parent) in tax-free childcare vouchers. If either of you has an income before tax and personal allowance of more than £50,000 a year, even a small amount of child benefit is clawed back as a child benefit tax charge. Additionally, new entrants into the childcare voucher scheme paying tax at either the higher or additional rates are limited to relief at the basic rate, meaning that the tax free amount reduces from £55pw to £28pw or £22pw respectively. Members of the scheme prior to 6 April 2011 continue to receive it at the full rate and therefore benefit from £55pw tax-free per parent.

For every £8 that a parent (or someone responsible for the child) pays for childcare, the government will contribute a subsidy of £2. Government support will be capped at £2,000 per child each year, although there will be no restriction on the number of children for whom the support will be available provided they are agreed under 12. Parents must be in paid work (which includes self-employment) but not additional rate taxpayers.

Middle age

As the children approach higher education you will need to see to what extent you can help meet a share of the education and living costs. Although the maturation of savings plans which were begun when the children were born can help at this time, you might also need to consider making extra provision as many students now leave higher education with debts in excess of £45,000. Do you wish to assist your children in this area? Are you able to?

By now you may have reached your earnings peak, and as the children leave home and begin work you should review your strategies to ensure you are on target for a comfortable retirement. What are your realistic objectives? You might, for example, want to consider moving to a smaller house, acquiring a second home, or increasing your retirement funding.

Alternatively, you may find yourself in financial difficulty. If so, remember there is always a way forward. The first step is always to acknowledge the situation. The second is to quantify the amounts involved. This may not be easy, but only when this is done can you design a path toward loosening debt's grip and advancing your investment plans.

Nearing retirement

If retirement beckons in the next fifteen years you will need to consider carefully and evaluate your income requirement and the extent to which your investments are going to deliver the return you require. You may also wish to help your children, and you still have to pay for a wedding. Investments, property and annuity rates are probably all lower than you might have expected before the economic and financial problems of recent years.

As you approach retirement, you need to review and update your plans at least annually to satisfy yourself that your accumulated capital is at less risk and to ensure that your income in retirement will meet your needs - and provide a little extra for the realisation of some of those long planned dreams.

Many people start retirement in debt. Do all you can to repay debt before retirement day.

At this point in life, it is worthwhile checking your state pension entitlement. This is done by completing form BR19. This statement will indicate whether you are entitled to the full state pension. There may be gaps in your state records where national insurance that you paid has not been credited to your records. This summary will also tell you what entitlement you have to additional pension. This comprises any entitlement you earned to graduated pension (1961 to 1975), SERPS (1978 to 2002) and state second pension (from 2002).

You should also keep track of and up to date with the value of any private pension fund by monitoring and filing their annual statements

In retirement

After 40 or more years at work it is time to take a well-earned rest, but you still cannot take your eye off of your financial planning if you want to enjoy a long and comfortable retirement. This may also be the time to set some money aside for your children or grandchildren.

However, balanced against these desires may be the need to finance long term care for one or both partners or spouses, and the potential impact of this on your financial security.

Charitable donations

Throughout your life you may wish to give money to charity. There are a number of ways in which it is possible to gift cash or assets to charity tax-efficiently. For example, under Gift Aid you can give a charity £100 at a net cost to yourself of as little as £50. Charitable donations can also be included in your Will, and again they will attract tax relief. If you leave 10% or more of your estate to charity your rate of IHT reduces from 40% to 36%.

Please speak to us for more information on making tax-efficient gifts to charity.