Families come in all shapes and sizes – some you’re born into, some you choose, and some who choose you. Here are our top tips for managing the finances of your family, whatever yours looks like.
Make a will
This is crucial if you have children under 18. Who looks after them if you die? Another tricky case is if your partner is not recognised by marriage or civil partnership, in which case they may find they have no legal claim on your estate if you die without a will. Whatever your situation, a will is a great opportunity to give gifts to friends or to support charities and causes. Our friends at Farewill can help you write a will in just 30 minutes.
Get your head around inheritance
While we’re talking about legacies, why not learn about inheritance tax. Check if recent increases to the tax-free threshold apply to you and, if appropriate, consider giving money away before you die. Everyone can give away up to £3,000 a year exempt from inheritance tax. On the other hand, if you’ve recently received or expect to receive an inheritance, now is a great time to plan what to do with it, whether that be paying off debts, saving or investing. If the latter, why not try one of our ISAs.
Consider life insurance
If you’re the breadwinner in your household, you might also want to consider life insurance. There are a few different types available but what they have in common is that they can help provide financial support to your family if you die. Buying life insurance is much less complex than it used to be thanks to online services, for example the free online assessment and insurance quotes offered by our friends at Anorak.
Start investing for the newest members of the family
Perhaps your family has recently welcomed its newest member. Now is a great time to set up an investment on their behalf, such as a Junior ISA. Thanks to the power of compounding, your investment could be worth significantly more by the time they’re an adult, which could really help them get a start in life.
Open a branch of the Bank of Mum and Dad
If you hope to help a relative get on the property ladder, you’ll find yourself part of a large and growing institution known informally as the Bank of Mum and Dad. As any banker knows, the key to staying solvent is good planning, so why not do some budgeting today to decide how much you’d be willing to give or lend.
If you’re trying to get on the property ladder yourself, why not consider a Lifetime ISA, which benefits from a 25% government top-up on contributions and can be put towards a deposit on a first home. If you’re in the market for a mortgage, why not see if our friends at Habito, the online mortgage broker, can help.
Education, education, education
Unlike previous generations, who often paid nothing, British students at English universities currently pay up to £9,250 a year for an undergraduate degree. We’ve estimated that a three-year degree can potentially cost around £50,000, when accommodation and living costs are included1. Investments made on behalf of children can help them avoid big debts when they graduate. On the other hand, if you plan to pay for a child’s schooling, consider whether you can bring the cost down either with bursaries or by haggling over fees.
Boost your pension for your retirement
We’ve thought about helping the younger generation. What about looking after ourselves? When it comes to planning for our later years, a pension is nearly always a smart option because of tax relief on contributions. Anyone can set up and pay into a personal pension, though arguably the people who benefit most from tax relief are higher-rate taxpayers. Note that you can also take lump sums from your pension to give to your family (though you should consider the implications for inheritance tax). If you are approaching retirement, now is a great time to do some financial planning. Can you afford to retire at 55? Nutmeg offer pensions, by the way.
One of many reasons to put money in a pension is to help pay for care, should you need it. For 14 hours of care a week at home, you’d pay an estimated £14,000 a year, according to the Money Advice Service. Costs multiply if you need full-time or residential care or require nursing. Supporting an elderly family member with care costs is likewise a significant commitment. Now is a good time to check your eligibility for local authority funding and to put aside some funds to help meet future needs.
Have an honest conversation
Money is one of those topics, like sex or death, which can be uncomfortable to discuss. But the key to happy family relationships is honest communication, including about financial topics. Why not involve the members of your family in a conversation about your financial plans. This might be a chance for them to gain a financial education, a subject that is sadly not taught widely in British schools.
We hope this family finance checklist has been useful. Please get in touch with our financial advice team if you have further questions. It goes without saying that money can’t buy love, but when it comes to protecting the interests of your loved ones, money does matter.
Please note, as part of our affiliate agreements, Nutmeg receives a commission payment for every successful affiliate product purchase arising out of this blog. Nutmeg is not involved in the actual purchase of any affiliate product and the information outlined above does not constitute financial, legal or tax advice.
- English universities can currently charge UK students up to £9,250 a year for an undergraduate degree, leading to a potential cost of £27,750 for a three-year course (tuition fees vary in the UK depending on country). Average student accommodation costs for a three-year undergraduate degree were estimated at £14,625 in 2017 by Times Higher Education. If we assume a total budget of £50,000, that leaves £7,625 for three years of living costs during university terms.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.
A stocks and shares Lifetime ISA may not be right for everyone. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in.
Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.
If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.
A pension may not be right for everyone and tax rules may change in the future. If you are unsure if a pension is right for you, please seek financial advice.
To open a Nutmeg JISA, your child must be under the age of 16 and funds cannot be withdrawn until your child turns 18. Tax treatment depends on your individual circumstances and may be subject to change in the future.
If you are unsure if a Junior ISA is the right choice for you and your child, please seek financial advice.