For many of us, our financial goals are tied in with having a happy home and fulfilling family life. This is often the case when paying off a mortgage, or investing into an ISA and Pension, the goal is typically to provide a plentiful life for yourself and your family.
Consider how you can take action today to help your family with investments:
Financial basics for the whole family
Finances for the whole family often starts with the basics, saving and talking through the choices around money.
A simple family budget is one of the simplest ways to manage your money, usually meaning sitting down with your partner and deciding upon how to proportion spending across bills, groceries, savings and investments. Once your essential spending is budgeted for, this leaves you with your disposable income, which is what can be proportioned towards leisure.
If you have children, it is never too early to teach the principles of managing money, and many parents will choose to do this with actions such as pocket money and showing a child how saving works. Financial education is important for children, as habits such as goal setting could help them to develop a saving mindset from a young age.
In addition to budgeting and saving for your family, you should always maintain an emergency budget. By building up a pot of around three months wages, you’ll always have a pool of money to draw upon for any unexpected or urgent life events.
In addition to savings and emergency funds, the other way to protect your family is through insurances such as home insurance, life insurance, and also considering income protection and health insurance.
Financial goals for the family
For shorter term financial goals in your family, consider how you could utilise an ISA.
Short term goals within a year or two, such as a family holiday, could be suited to saving in a Cash ISA. You’ll receive interest on your deposit from the interest rate available, although this may not match the rate of inflation.
For family goals of five years or more, you could consider a Stocks & Shares ISA. These could be suited to the longer term family and home goals, perhaps a house extension in the future. Money invested for the long term in a Stocks & Shares ISA has the potential to grow, based on the performance of the funds you are invested in. With investing however, your capital is at risk and you could get back less than you invested
Discussing money with your Partner
One of the most important financial conversations you’ll have with your partner is about your Pension and what may happen to you in the event of your death.
Naming your partner as a Pension beneficiary is something that many Pension holders will choose to do. This is a way of ensuring your Pension is passed on to someone you trust. If you are going to name your partner as a Pension beneficiary, speak with them and explain your wishes.
As your Pension isn’t part of your estate, it normally won’t be liable to inheritance tax. Your partner would be able to receive the value of your Pension and choose to keep it invested in a Pension wrapper to to maintain its tax efficiency and potential to grow over the long term. Your Pension could still be taxable at the beneficiary’s marginal rate depending on age at death and whether benefits have already been accessed.
Setting up your Pension beneficiary is easy, simply contact your Pension provider about filling in your expression of wish. At True Potential this is as simple as logging into the True Potential app, selecting your Pension, viewing full details, and selecting edit against Expression of wish. This allows you to name and provide contact details of your Pension beneficiary, making it easier for the Pension trustees to pass on your Pension in the event of your death. You can name more than one beneficiary, for example, your partner, relatives, a trust or a charity.
In addition to your Pension expression of wish, you should also consider creating a Will to decide upon how any assets held within your estate will be settled. Discussing this with your partner or the executor of your estate may be a good idea, so they know and understand what your financial legacy wishes are and how to react in the event of your death.
If you have Children
If you have young children then a Junior ISA could be a good way to provide for their future. The Junior ISA allows you to invest up to £9,000 in the 2023/24 tax year, and this can be as a Cash ISA or a Stocks & Shares ISA, or you can hold both types. You contribute specifically for the future of your child, and the money invested belongs to the child and can only be accessed when they turn 18. They’ll be able to take control of the account at 16, but will only be able to withdraw from 18. This could be a useful way to build a pot for them towards education fees or their first home. A Junior ISA is tax efficient as any growth is free of UK tax.
Keep in mind that in a Stocks & Shares Junior ISA, capital is at risk and the value of the investment could go down as well as up. On the other hand, a Cash Junior ISA’s interest rate may not match the rate of inflation.
If you have older children, consider how they may feature in your financial legacy. By naming Pension beneficiaries you are able to pass on your Pension, meaning your investment could continue to grow in the hands of your next generation. Even if your children are only young, it may be worth adding them as beneficiaries to make the process easier when passing your wealth on tax efficiently.
Regardless of the age of your children, it is never too early or too late to sit down with them and talk about finances. If you have young children, teach them about the value of money and reward of saving. If you have older children, ensure they understand the importance of investments and in particular Pensions. If a young person invests into a Pension from age 16 when they begin work, all that time in the markets could be worth far more than starting investing later in life. Even small amounts would make a difference, as the money invested would potentially have fifty to sixty years worth of growth to accumulate.Investing in a Pension for someone under the age of 18 would likely involve a third party contribution which may be eligible for tax relief. However, the investment would only be accessible later in life, with the current withdrawal age of 55 due to increase to age 57 in 2028 and other increases likely in the future.
Consult a financial adviser
Every person and every family will have unique circumstances, so it could be worth speaking to a financial adviser to ensure all of your family finance plans are set up in a tax efficient and productive manner.
If you need financial advice or would like to open an account yourself click ‘Start Investing’ or call our dedicated team on 0191 625 0350.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. ISA and Pension eligibility and tax rules apply. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. This blog is not personal recommendation or financial advice. Past performance is not a guide to future performance.
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