I totally get that the thought of getting your family finances in order can be a bit daunting and it can seem like such a big job that you might be tempted to keep putting it off but it’s well worth the time spent getting it sorted. In today’s post, we’re going to break it down into more manageable steps so you can do it bit by bit and start 2019 in a good place…
To me, it’s all about understanding your current spending, setting yourself achievable goals and making necessary (not always fun) decisions, you’re on the right track to ensuring your family’s future is as financially secure as it could be.
Step 1: Understand your current financial situation
The best way to start planning your financial future is to get a full understanding of your family’s current spending and finances. You’ll need to use online banking or gather bank statements to track current expenses, including everything from household bills to things like eating out. I have a fab free budget planner you can use to do this but a plain old spreadsheet or budgeting app on your smartphone will do the job too.
You can get everything written down so you know where you’re at, where your money is going and then where you can cut back.
Step 2: Set financial goals for the future
What would you and your family like to be able to afford in the future? They need to be achievable, but also bear in mind the amount of time it might take – you could have different goals for the short, intermediate and long-term.
Are you saving for a wedding or a family holiday? Or would you like to put away money for your children or grandchildren? Set a timescale to each goal, which allows you to work out how much to set aside each month towards it. For example, just £25 a month doesn’t seem like much, but if you wanted to save money to invest in your child when they reach 18, it will accumulate.
Step 3: Assess where you can make savings
Once you’ve got a good overview of your expenses, identify any negative spending habits. Physically looking at how much you spend on things you don’t necessarily need is a great way to help curb spending, and now you have goals to aim for, you’ll be more inclined to cut back on things that aren’t compulsory to save money.
Depending on how healthy your budget looked in step 1, you don’t have to cut back on everything. We’ve allowed a few treats to creep back in to our budget now that Life after debt – our journey to becoming debt free….we’re debt free and in a reasonably good place.
Step 4: Create a budget
Figure out how much money you can put towards your savings by creating a budget that you can track and manage. There are plenty of tools online, like Mint, that can collate your spending. Once you understand your current incomings and outgoings, you need to plan what you’ll do with the rest of it.
How much are you willing to invest in certain areas of your finances? Do you have a limit on how much you want to spend on things like new clothes and takeaways? Be sure to take seasonal expenses into account, including birthdays or anniversaries you might need to spend extra on.
Step 5: Build a strong financial foundation
You need to do more than just save. Take what you’ve learnt about your financial situation and tackle outstanding debt first by cutting expenditure and putting any spare money towards outstanding debt. This way, your financial future can be based on a strong foundation without worries about incurring interest or fees.
Step 6: Know what you might be entitled to
It’s estimated that as much as £10 billion worth of benefits go unclaimed each year, showing just how necessary it is for you to check what you might be entitled to. For example, tax credits and child benefits may bring in additional funds that can help you adjust to new budgets and save more money for the future.
Don’t feel bad or judged for claiming what you’re entitled to.
Step 7: Secure a retirement savings plan
It’s vital that you think about your retirement plan as early as possible before you start planning how you can put money away for future generations. For a lot of people, it’s hard to put money away for such a long time in the future but ultimately it will make things much easier. Your employer will have a scheme in place, so at the minimum, you need to be matching their contributions ideally but there’s so much more you can be doing.
We’re focusing on our mortgage so we can minimise our outgoings as quickly as possible.
Step 8: Prepare for the unexpected
You never know what the future holds and it’s important to have a backup plan should the worst happen. Whether it’s losing your job or getting sick, an emergency fund that can cover the bills for a period of time may just keep a roof over your family’s head until your situation improves. It’s advised to have three months’ worth of essential outgoings saved in an instant access savings account.
Step 9: Minimise risks
To ensure complete peace of mind for your family should something go wrong, you might want to speak to a financial advisor about personal protection insurance. There’s a range of cover options to suit different budgets, including life insurance policies that will pay out a lump sum on death, private medical cover or an income protection policy. Many of these will help provide financial stability for the future.
I also pay for cover in case my heating breaks down, breakdown cover for my car and pet cover for the dogs in case anything happens to them.
Step 10: Estate planning
Again, this is something that many people don’t like thinking about, but ultimately it can make things much easier for those you will eventually leave behind. Inheritance is often not spoken about until it’s too late, and the process of bequeathing an estate can become very complex.
You and your family need to draft a valid will with a financial planner and you should consider nominating a Lasting Power of Attorney who can deal with your affairs should you become unable to do so.
Ultimately, the most important piece of advice to take on board is to have open conversations about your finances and goals. Decide as a family what you would like to achieve, how you can save money and what you would like to spend it on. And include your kids in these conversations too where appropriate – it’s a great way to help teach them good habits about money and saving.
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