It would seem that making sure financial security exists before we start a family is a must for a large number of people.

New research carried out for National Savings & Investments by the Future Foundation found that nearly two-thirds (64%) of people believe you should be financially secure before starting a family.

Our finances also influence important decisions about the planned size of our families. The research also found that 78% agreed standard of living was an influencing factor when deciding how many children to have.

When we have brought children into the world, it appears that our priorities change a little. Despite a steady increase in the sales of life assurance in recent years, the gap between the life cover we have and what we should have remains at over £2 trillion in the UK. That’s a pretty big gap!

Life assurance is not the only thing to think about when ensuring future financial security for your family. Here are the steps you might need to take to make sure that your family is financially secure in the future.

1 – Get protected

Often the place to start is putting in place sufficient life assurance cover. You should aim to do two things with this life assurance.

Firstly, to pay off all of your debts, including your mortgage and any credit cards. In the event of your untimely death, you would not want to put your family in the difficult position of having to sell the family home to repay the outstanding mortgage.

Secondly, you should provide enough capital or income to fund their lifestyle in the future. This is typically done with Family Income Benefit which pays the sum assured in the form of an annual benefit. It should be easier for your family to work with a regular income after your death than having to invest and manage a capital lump sum.

The first figure should be simple to calculate. You need to get a current balance from your mortgage provider and a figure for any other outstanding debts (credit cards, personal loans, store cards, car finance, etc). The second figure, working out how much your family would need longer term, is more challenging to calculate.

To arrive at a reasonable figure, you need to look at your current expenditure and think about what would change in the event of your death. Work through each item in your budget and agree with your partner how this expenditure might increase, decrease or be removed. Don’t forget to factor in future price inflation.

Remember that you might already have some financial resources in place in the event of your death. In particular, look for any death in service benefit from your employment, the life assurance element of any endowment policies and the value of your pension funds. In the case of pension funds, make sure you have nominated beneficiaries so the trustees know where you would like the value of your pension fund to go in the event of your death before retirement.

2 – Write a will

If you have children then you should have a will and this should reflect your current wishes. Within this you will want to do two things; provide instructions for who should receive your assets in the event of your death and appoint a guardian for your children.

If you die intestate (without a will) then the distribution of your assets will depend on your personal circumstances, but will be dictated by rules introduced in England and Wales in 1925. Instead of your money going to chosen beneficiaries it is instead paid to other relatives. If no such relatives exist, then the value of your estate is paid to the Crown.

Making a will is particularly important for unmarried couples who cohabit and/or have children together. It is also important if you have children from a previous relationship.

Getting your wishes formalised within a will is a sensible financial planning step to make sure that your money goes to the right people, with the minimum of fuss, in the event of your death.

3 – Stay organised

Financial aspects are only one immediate worry in the event of an unexpected death. The ability to quickly and easily place your hands on relevant financial documents is essential.

Whilst you might know precise where to find all of your important financial documents, there is a reasonable chance that your family will not.

Rather than putting them through the added stress of locating your paperwork, consider creating a ‘death folder’ which contains a summary of your assets, liabilities, accounts and financial policies, along with a copy of your will and other instructions. You might also want to include personal letters to your loved ones, for opening in the event of your death.

Staying organised involves more than just the financial and legal aspects of your life. Also think about your personal property. Keeping your life in general organised will make things much easier for your family to deal with in the event of an untimely death.

4 – It’s not just death

Whilst we often think about life assurance and wills in respect of family financial security, it is also important to consider the financial impact of other events. These might include the diagnosis of a critical illness, becoming disabled or suffering from a long-term sickness. All of these events can have a detrimental impact on your financial capability, potentially resulting in financial trouble for your family.

It is possible to put in place financial protection for all of these events. Critical illness cover, permanent and total disability cover, and income replacement insurance are all readily available types of financial protection. Your ability and willingness to put these things in place will depend, to a large extent, on affordability.

Whilst in an ideal world you would want to insure against every possibility, in practical terms you will need to prioritise and then align protection with your budget. The first step is to consider the various risks and find out how much it would cost to insure against each one occurring.

5- Keep things under review

Planning for the future financial security of your family is not a ‘one off’ event. It is something you need to keep under regular review to take into consideration changing circumstances.

A formal annual review of your plans makes real sense. You should also take a closer look at your arrangements each time you experience a ‘life event’ such as a change of job or the arrival of a new child.

Martin Bamford is site editor at BrilliantWithMoney and a Chartered Financial Planner at Informed Choice. You can follow him on Twitter @martinbamford.

With the wedding season in full swing, now is a great time to be thinking about the financial aspects of marriage. From opening a joint bank account to thinking about your life assurance, here are the five financial steps you need to consider before you walk down the aisle.

1 – Put everything on the table

Complete and open disclosure about the state of your personal finances, including your debts, is essential before you tie the knot. Rather than assuming your other half knows everything about your money matters, schedule some quality time to bring everything together and review it all.

Sharing your financial details before getting married will prevent any nasty surprises at a later date. Look at things together in four main areas – assets (the things you own), liabilities (what you owe), income and expenditure. Assets and liabilities are the most important, as you will both share ownership of these after the big day.

2 – Understand your new responsibilities

Getting married creates an important financial responsibility to your new husband or wife. It is important to consider these responsibilities and make sure you are adequately protected from a financial perspective.

This step involves making sure there is sufficient life assurance cover in place should one of you die unexpectedly. A good general rule of thumb is to have enough cover to repay all of your debts and produce enough money to support your family after you have gone. If you have, or you are planning to have, children together then this becomes especially important.

You should also both consider re-writing your wills, or getting a will in the first place if you do not already have one in place. It always makes sense to review your will every time a significant event takes place in your life. Getting married is definitely a significant event!

Marriage is also the right time to ensure that any beneficiaries nominated for the benefits from any existing life assurance or pension plans remain up to date. The person or people you nominated to receive these benefits before you got married might be very different to the name you choose to put on the paperwork afterwards.

3 – Agree on your spending priorities and financial goals

When you enter into a lasting relationship, it is important to have shared financial goals. This is particularly the case if you are planning to share income. Agreeing on how you are going to spend your shared income and what your financial goals together in the future look like is essential.

Two different people might be compatible in every other sense, apart from their financial goals. Spending some time understanding this before you get married is a good way to avoid arguments somewhere down the line. You might agree to disagree on this point, but at least it will not come as a big surprise when the two of you want to spend money on different things.

Do not automatically assume that you must both use a joint bank account for all of your household finances. It is becoming increasingly common for both parties to a marriage to retain their sole accounts, maybe opening a joint account to handle joint expenditure only. Do what works best for you and not what you think others expect.

Thinking longer term, you need to agree on how you invest money for the future. Financial objectives like retirement planning need a concise strategy including how you allocate any spare money each month. If you have different levels of earnings, it might be worth funding the pension of the higher earner to benefit from the maximum level of income tax relief. Think in terms of your total household income and your pensions as a shared asset for your future financial security.

4 – Consider a pre-nuptial agreement

Whilst it isn’t particularly romantic to think about the end of a marriage before it starts, it does make sense to consider the possible financial consequences of divorce, particularly if you bring a greater level of wealth or business assets to the relationship.

Pre-nuptial agreements are formal agreements setting out the intentions of both parties should they get divorced in the future. They are not yet legally binding in the UK to the same extent they are in many other countries, but they can make the financial aspects of any subsequent divorce proceedings less stressful.

5 – Make time for money

Dealing with your finances as a result of marriage is not a one-off event, never to be repeated. It is good practice to schedule some time each and every month to work through your household finances together.

Resist the temptation to delegate responsibility for financial management to one partner. It is unfair to place all of this work on one person and it can be damaging to your relationship in the long term if one spouse feels out of control when it comes to their money.

A regular review of your budget each month should take place in addition to a more formal financial review at least annually. This is also a good time for both of you to meet with your Financial Planner to update your documented financial plan and check the progress you are making towards longer term financial goals. An ad-hoc financial review might be required should other significant life events occur during your marriage, such as the arrival of children to your family.

Martin Bamford is site editor of BrilliantWithMoney and a Chartered Financial Planner at Informed Choice.

Cutting the cost of your life assurance

Published: Thursday, 16th July 2009
Duration: 1:57
Size: 1.8MB

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The growing scale of the swine flu pandemic is focusing some minds on financial planning in the event of a large-scale emergency. It might not be flu, but another natural disaster or terrorist attack can quickly turn life upside down. We live in uncertain times, and there are steps you can take to create certainty when it comes to your financial planning.

Your emergency fund

Whenever you read an article about basic Financial Planning, there is always talk about building an ‘emergency fund’. After the eradication of expensive unsecured debt, creating a fund of money for a ‘rainy day’ is one of the most important financial planning steps you can take.

Experts often suggest that your emergency fund should be calculated by reference to typical expenditure over 3-6 months. If you spend £2,500 a month on the things you cannot live without, your emergency fund needs to be between £7,500 and £15,000. Depending on your risk profile and general outlook you might choose to keep more or less than this in a cash emergency fund.

Your emergency fund needs to be readily accessible. There is no sense in setting aside money for an emergency in an account which ties the money up for several months or longer. Under normal circumstances this means keeping the cash in an instant access account. In extraordinary circumstances, where the infrastructure of society starts to break down, you might want to have physical cash in your possession rather than money in the bank.

Something as simple as a widespread power cut could prevent you from withdrawing cash from the bank or using plastic to pay for goods for several days.

Keeping cash at home is not something we would usually recommend. There are several reasons why this is normally a bad idea. You might not get much interest on savings at the bank right now, but at least some interest is added. When your cash is at home it earns no interest and has no prospect for growth.

There is also the safety and security issue to consider. Cash at home needs to be locked away safely for protection from burglary, fire or flood damage. You will also need to check the terms of your home contents insurance and possibly notify your insurer about the presence of cash at your property.

Important papers

If you are anything like me, on a shelf somewhere at home will be several folders containing policy documents and statements. Mine are relatively well organised, but many of the clients we work with turn up to meetings with a pile of important paperwork in the less than glamorous surrounding of a plastic carrier bag.

In the event of a large-scale emergency where you have to vacate your home, how easily could you assemble the paperwork that mattered? Would you even be able to tell the difference between what you needed and what you could leave behind? There are similar considerations in the event of a fire destroying your home. What steps have you taken to preserve important financial documents now to ensure you can always access them in the future?

There are a couple of possible solutions to consider. You could invest in a fire-proof document safe for your home. These are not infallible, but they do offer a degree of protection against losing your financial paperwork.

An alternative option to consider is scanning all of your paperwork and keeping these copies ‘off-site’. This is my preferred option and I make use of a secure online storage solution which is regularly updated. I also keep a CD-Rom copy of my scanned financial paperwork at a different property. Both versions are encrypted to ensure that only I can access them in the future.

Preparing for the very worst

In the event of death, there are only two things you will want to have had in place from a financial planning perspective – adequate life assurance cover and a will. The life assurance policy will provide much needed capital or income for your family, and the will ensures that your assets are distributed according to your wishes.

These are two incredibly simple things to put in place, yet a high proportion of people continue to die each year without having written a will. Life assurance requires a brief meeting with a financial adviser to determine your cover requirements, the completion of an application form and occasionally some medical underwriting.

Before rushing to complete a life assurance application, think about the level of cover your family would actually need in the event of your death. It is also important to consider what cover you might already have in place. If you are an employee then you might benefit from death-in-service cover.

Writing your will is also simple, but you should always do this through a solicitor rather than taking the ‘DIY’ route. A poorly worded will can create even more trouble and financial aggravation for your family at the time when they need it the least.

Profiting from disaster

The start of the current flu-scare saw the share price of some pharmaceutical companies climb with airline and hotel company shares falling in value. This is an area I am not going to discuss, as I consider it to be unethical to try and profit from any form of human tragedy.

In addition to the moral issues at stake, trying to time the price fluctuations in a particular company or sector as a result of an emergency situation would be nearly impossible to do. It is far better to invest for the long-term in line with your personal financial objectives and risk profile.

The best time to plan

As you can see from the items covered in this article, preparing your finances for a major emergency involves some relatively straightforward steps. The best time to complete these steps is today because you never know what is around the next corner.

If you wait until you feel the importance of building an emergency fund, having some cash at home, backing up your important financial documents, taking out a life assurance policy and writing a will, it will probably be too late to do any of these things.

We should all prepare for the worst but expect the very best from life. At least then if the worst does happen, we will be in a better position than we were before to ride out the storm and survive (both from a physical and financial perspective).

Martin Bamford is site editor at BrilliantWithMoney and a Chartered Financial Planner with Informed Choice.

The best route to becoming brilliant with money will always vary depending on your background, current position and goals for the future. There are however five steps that often make up this roadmap.

1 – Sort out your budget

Before you do anything with your money, you need a budget. Write down what you earn and what you plan to spend. You then need to track both items. The aims of budgeting are to understand what you spend and, more importantly, widen the gap between your income and expenditure.

Until you are in the position where you consistently earn more than you spend, improving your overall financial position will always be an elusive dream.

2 – Get rid of your debt.

Put simply, your debt is a drag on your ability to achieve your future financial objectives. Unsecured debt, such as credit cards, is typically expensive. It also reflects an unhealthy and unstructured attitude towards spending. It is usually cheaper to buy something rather than borrowing; not to say more satisfying!

3 – Protect yourself.

The best laid financial plans can be quickly knocked off track by an unexpected catastrophe. The big three to think about are death, the diagnosis of a critical illness (such as cancer) and being unable to work due to an illness or injury.

Consider what impact each of these would have on your financial plans and then place them in order of priority before exploring suitable financial protection plans to insure yourself against the risks.

4 – Start saving.

The foundation of a good financial plan is a cash emergency fund. This needs to be readily accessible money and should be equivalent to between three and six months typical expenditure. This is the cash which will give you an all important breathing space in the event of a financial emergency.

5 – Think longer term.

The first four steps were all about taking action to deal with immediate issues. Step number five is all about the future. You need to start planning ahead for two main things.

Firstly, any large items of capital expenditure, such as a new car. You might fund these through saving if they are in the near future or investing your money if it is longer term. Secondly, you must plan for the day when your income from employment runs out due to retirement.

For people seeking to make a start on their road to becoming brilliant with money, these five steps are likely to be the most appropriate immediate strategy for getting started. There is a tendency when it comes to money management to over complicate things. Becoming brilliant with money should be reasonably simple. In fact, a simple financial planning strategy is more likely to succeed than one which is unnecessary complex to implement or sustain.

Martin Bamford is site editor at BrilliantWithMoney and a Chartered Financial Planner with Informed Choice.