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How to create a financial plan for your family

When there’s always something that needs buying now, it can be hard to think long-term. But it pays to plan for the future.

Our guide to family financial planning is designed to help you work out the steps to take now to create the future you want.

What to do if you’re worried about money

If things are getting on top of you, the most important thing is to talk. Speak to your partner and if they’re old enough, your children, about the household finances.

Work out as a family where you could save money and discuss what you're hoping to be able to pay for in the future.

While you might not want to worry your family, this affects them too and including everyone in the financial decision making can help your family understand how they can help – even if it’s simply by switching off the lights when they leave a room.

It's also a valuable lesson for children in managing their own finances when they're older.

Our Supporting You section has advice on what to do if you’re struggling and details of where to go for help.

Creating a plan

There’s no set way to create a financial plan. But, generally speaking, you should consider:

  • Your goals and those of your family
  • What you’re currently spending
  • How much you can afford to save while still paying for essentials
  • How you can pay off, or consolidate, debt to reduce how much it’s costing you
  • What an achievable budget would look like for you

What are your and your family's goals?

Many people find it helpful to have a goal in mind to help them focus on what’s important. Goals can help to motivate you to make “sensible” decisions when you feel tempted to buy something that you could probably do without.

But to keep you motived, it needs to be the right goal for you.

A good place to start could be thinking about what you'd like for your children, if you have any. They might be too young to have their own goals but once they reach adulthood, a financial boost is bound to be useful – whether that’s to go towards higher education, setting up their own business, seeing the world or buying their own home.

Or you might have an idea of something you’d like for your own home, such as an extension or some repairs.

Maybe there’s a holiday you’ve always wanted to take, either on your own or as a family. The thought of lying on a beach in Thailand could be very motivating when you feel an itch to slurge on something you don’t need!

Or you might simply want to build an emergency fund for a rainy day. If there's one thing we know for sure, it's that one day we’ll be glad we put some money away for anything urgent.

What are you currently spending?

It can be daunting, but having a proper look at what you’re spending money on is the only way to work out where you can cut costs.

So, take a big breath and open your banking app.

There’s plenty of budgeting apps out there that can help you see where your money is going but if you prefer, you could simply write down everything you’ve spent money on during each month and give it a category. For example, ‘groceries’, ‘clothes’, ‘bills’.

Add up the total you’ve spent and the total for each category.

This should firstly show if you’re spending more than you have coming in. If you are, or if you simply want to cut down on spending, looking at each category individually should give you an idea of where you could tighten your belt.

You could also label each spend as either ‘essential’ or ‘not essential’. Heating bills and new school shoes are probably essential but, sadly, a Friday night takeaway maybe isn’t.

By labelling your spending like this, you’ll be able to quickly see how much your family spends on things that you don’t really need and will probably spot some areas where you could make savings.

You might also be able to make some savings on your essentials. For example, there might be a better deal available with another energy supplier or internet provider.

Just be careful to check the full terms and conditions before committing – sometimes companies offer what sounds like a great deal but it might only be for a short amount of time and you might have to pay your current provider an exit fee.

How much can you afford to save while still paying for essentials?

Hopefully, looking at your spending will have given you an idea of where you can cut down. The next question is, what will you do with the money you’re going to stop spending?

This is where your goals come in. Let’s say you’re aiming to have a £5,000 emergency fund saved up within five years.
If you ignore interest rates and investment returns for a minute, you’d need to save £1,000 a year which is roughly £83 a month.

Is it possible to reduce your spending by £83 a month and put this money into a savings account instead?

Of course, we can’t fully ignore interest rates and investment returns because if you do save £83 a month in an account that pays interest or if you invest it, it’s likely it will take you less than five years to reach £5,000.

There are many different types of accounts out there and which one is “best” is constantly changing so we can’t advise you on which to choose.

But we can explain the differences between saving and investing.

  • With saving, your money will grow by a percentage of the amount in your account.
  • Money you invest, on the other hand, has potential to grow by more than interest rates as your money is invested in a fund that buys assets, such as company shares, on your behalf. There is a risk though with investing that your money could go down if the value of those assets falls.

How can you reduce the cost of debt?

If you’re paying interest on debt, getting this paid off is probably a high priority for you.

If you’re paying a higher rate of interest on debt than you would be getting on savings, you might choose to pay this off before you start building your savings to put yourself in a better financial position first.

This is easier said than done. But it might be worth making “pay off credit card” your goal for now and making sure you’re paying more than the interest each month to bring it down.

Again, we can’t tell you what’s best for you, but you might find that you can move debt to reduce how much interest you’re paying so that you’re able to reduce your debt.

Look out for 0% balance transfers on credit cards and debt consolidation loans. But please read the terms and conditions before committing and be confident that moving your debt to a different product is going to reduce your interest rates.

Student loan debt is a bit different because:

  • You only make payments if you earn above a certain amount per week, month or year
  • The debt doesn’t affect your credit score
  • If it’s not paid after 30 years it’s written off

What does a realistic budget look like for you?

“Realistic” is an important word here, you might have big plans to reduce your spending and increase your saving, but if it’s not realistic then it just won’t work.

So be honest, and kind, with yourself.

Firstly, write down everything you need to spend every month. Include as much detail as you can, not just your rent/mortgage and bills. Think about all the small things as well such as pet food or bus journeys.

It’s impossible to predict all expenses, so you might want to make “pots” of money available for certain things each month. Maybe it’s £100 a month for entertainment, technology upgrades or new clothes, for example.

Then look at next month. Is there anything extra that you know you’ll need to spend money on, such as a birthday or a day out that’s already in the diary? If you put that money aside on pay day then you know you can afford it.

Hopefully, there’s enough left for saving, paying off debt and those non-essential expenses. Just make sure you know how much you’re putting towards each!

At the end of the month, check how you did. Matching your plan with your actual spending can help you see where things went wrong or right and where you can make changes to make next month a success.

Looking for a simple way to invest for your children?

With our stocks and shares Junior ISA you can invest one behalf of a child from just £10 per month up to a maximum of £9,000 each tax year. Anyone can pay in, and the child will get access to the account when they turn 18 years old.

Junior ISA

Junior ISA

Your children deserve a head start. Invest in their future with our tax-free savings accounts.

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Our Family Bond and Junior Bond are Tax Exempt Savings Plans which allow you to invest £25 per month or £270 per year for ten or more years. As long you keep up payments you - or the child - will receive a tax-free lump sum when the policy matures.

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Is it better to save or invest your money?

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How to plan for long-term savings goals

Looking at the bigger picture can help you put together a plan to build the future you want.