Five Essential Family Financial Toolkit

Five Essential Family Financial Toolkit

If there is anyone dependent on your income - parents, children, relatives - you need life insurance.
— Suze Orman

At MoneyNotes, financial education is core to what we do and we feel it is an important element of life skills. Greater emphasis should be placed on it in national curriculum both at secondary schools and advanced levels.

From time to time we come across MoneyNoters that haven't been exposed to this sort of education and are overwhelmed as to a starting point to put their household finances in order. Therefore we have set out five essential family financial toolkit every family must have especially when there are kids involved. This should help bring order to the financial situation and focus on more important aspects of life.

1. Emergency Fund

First and foremost it is important to have funds to call on in the case of a household emergency. This should ideally be in cash so that it is easy to access. There are several suggestions out there on how much to hold in this fund but consensus and even the Money Advice Service seems to converge at three months of salary. This should give the family enough resources to cope with uncertainties such as:

  • Job loss by one or more of the financial contributors to the household.
  • Unplanned home repairs such as boiler breakdown, water leaks etc.
  • Unexpected car troubles
  • Other unplanned miscellaneous.

2. Family Investment Fund

Now that the Emergency Fund is in place, it is then important to set up a regular investing account to focus on growing the major part of the family's assets to at least match inflation over the long term and preserve the purchasing power of the family's money. If you are cautious or new to investing then check out five myths that are stopping you from investing.  The family investment fund could be used for major projects such as

  • Funding private school fees
  • Significant home improvements, loft and other extensive work
  • Major holidays
  • Funding a side hustle or additional property purchase to boost family income

3. Investing for Pension

People often overlook saving for a pension as the consequences of not having a good pension is only brought to the fore later on in life. Imagine retiring at around 65 years and then on average living for another 25 years. In those 25 years you are not working but still require funds to cover all your bills. So it’s never too late to start putting some money away for retirement.

What's more, pension contributions are tax exempt so what you contribute will not be taxed or if you are contributing from your income after you have paid tax then the government contributes the tax back into your pension account. It is also now mandatory for your employer to contribute to your pension. Therefore your contributions, tax exempt nature of pension contributions and your employer contributions can help the family pension pot grow quickly.

Finally, in some cases whatever is left in the pension pot after parents pass away is usually protected from inheritance tax. So start contributing!

4. Investing for the kids

Investing for kids is such a fantastic way to get them financially educated. However, it is best to start with small amounts for example £25 a month into a Junior Individual Savings Account (JISA) which is both tax exempt and can only be withdrawn when the child gets to their 18th birthday.

Well, how is this a fantastic way to get them financially educated we hear you ask? Research shows that children’s money habits are formed by as young as age seven. At this age their JISA should have in the region of £2,100 (£25 a month for seven years). This should be enough to educate them on investing in funds, other assets and also why regular investing is important. More reading materials are set out below.

5. Insurance - Life, Severe illness and others

It is important to reiterate once again that MoneyNotes is not in the business of providing advice or selling financial products but to deliver financial education to support you on your journey to knowing your money better.

Insurance especially insuring life is usually a difficult topic to address as no one likes dealing with the prospect of death. Sadly it does eventually come to us all. Therefore it is so important to ensure that there is financial comfort for those you leave behind so that they can still have a roof over their heads, cover household bills and all other basics. It is usually difficult to chose one of these complex products for example should you insure the whole of your life or a fixed period which protects your family when the kids are young. Also should you insure for critical illness? The Money Advice Service has a fantastic piece on this to help provide you with more guidance.

We hope you already have these five financial toolkit for your household in place or at least some of them. If not then it’s never too late to start. Let us know how you are getting  on with putting these in place and if you need to chat then give us a call.

Why not continue your educational journey by reading some of the articles and books below.

Reading List

1. Money: Know More, Make More, Give More

2. Junior Isas — how to invest for your children

3. Unshakeable: Your Guide to Financial Freedom

4.  Investing in Shares For Dummies

5. THE BAREFOOT INVESTOR: THE ONLY MONEY GUIDE YOU'LL EVER NEED

6. Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! 

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