Financial Planning for Young Families – A Complete Guide

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Young families are faced with a number of financial challenges that put extra pressure on everyday life. From dealing with student debt to applying and paying for a mortgage, decisions need to be made that could have a huge impact on adult life.

With so many factors to consider, it’s hard to know where to begin.

Financial planning is so important for young families to enable you to effectively plan for your family’s future.

We talk about the biggest financial hurdles you will face as a young family and explain how to overcome them.

Financial planning for young families – Step by Step

Average Household Expenditure

Set some financial goals

Setting goals will give you something to aim for in the long-term and motivation for the short-term, especially when it comes to finances.

Family financial planning should be a joint effort. Discuss with your family the following questions:

  • What are our short-term goals (for example, a holiday or new car)?
  • What are our intermediate-term goals (for example, buying a family home)?
  • What are our long-term goals (for example, funding your children’s education or retirement)?
  • How much will we need to budget or save for each goal?

By writing down and agreeing your goals you can start to budget and plan how you will meet them.

Family financial planning: how to budget effectively

Keeping your finances in check through careful budget planning, and sticking to it, will help set you up for the future and prevent debt.

The first step is to make a list of your combined income, including salary, and any other income and benefits that you receive. 

Step two is to look at your outgoings by analysing your current account and credit card statements from the previous three months.

Make a note of all the payments and withdrawals that have been made.

Any disposable income that you have will be the difference between your total income and the total of your outgoings.

To save money, split your list of outgoings into essential and non-essential spend then work out what you could save by reducing the non-essential spend. 

Also, look at where you could make swaps such as changing your energy supplier or switching to a cheaper brand of food.

Seeing your outgoings in this way is an easy way to manage your money and make savings by removing unnecessary costs or reducing utility bills.

Do you have any unused subscriptions that you could cancel? Effective family financial planning requires some tough decisions to be made.

Setting budgets: the effective approach to financial planning for young families

The average American household expenditure is $7,923 a year.

The most important part of family financial planning is setting budgets that are realistic to your circumstances.

Unrealistic budgets will only result in overspending which will prevent savings from being made.

Setting a budget for food and leisure will help control your spending habits and prevent you from overspending each month and going into debt.

Planning your weekly meals is a simple way to rein in how much of your budget is spent on food.

Track your actual spend against what you budgeted for throughout the month.

Keeping track of spending will help you stick to your plan or allow you to adjust your budget if required.

Banking and saving

A large part of effective financial planning for young families is banking and saving.

Any excess income that you have should be put into a savings account to prevent it from being spent on unnecessary purchases.

Creating an emergency fund account will help to safeguard your family’s financial situation and reduce the likelihood of going into debt through credit cards or loans should you need access to money quickly.

The money in this account should only be spent in an emergency situation such as a washing machine needing to be replaced or if you lost your job.

Preparing to buy a house

Buying a home is likely to be the single biggest financial commitment that you will make in your lifetime.

If you’re confident that it’s the right time to buy a house for you, here are some tips to help you get prepared and start the family financial planning process.

1. Know what you need compared to what you want

Working out the difference between what you want compared with what you really need is a crucial step in the house buying process.

One of the reasons why many young families struggle to buy a house is because their expectations don’t match what they can afford.

Be honest with each other and agree on your list as a family.

2. Work out the actual costs involved

There are lots of fees involved with buying a house, many of which you might not have heard of.

These include:

  • Mortgage arrangement fee
  • Valuation fee
  • Legal fees
  • Stamp duty
  • Surveys
  • Required maintenance work
  • Removal costs

It’s important to factor these into your budget and affordability assessment and family financial planning before starting the buying process.

3. Set a savings goal and timeline

Having something to aim towards will help you achieve it.

Make sure your target includes all of the upfront and ongoing costs associated with buying a house.

Set small milestone targets and celebrate every time you hit one to keep you motivated.

4. Share your goal

Sharing your goal with family and friends is a great motivator.

You are much more likely to stick to your savings plan if you know that you will be asked how it’s going.

Your family may also want to help you achieve your goal and make small contributions.

5. Decide on the location

Once you’ve set your financial goal and have started saving, now it’s time to start searching.

Local amenities, transport links and how far your commute to work is are all important factors to consider when deciding on the location for your new home.

Visit the area during the day and night to get a good feel for the area and make sure it is right for your family.

6. Check your credit score

Before you apply for a mortgage it’s important that you check your credit score to understand your current credit position and show you what potential lenders will see. T

ake time to check all of your information is correct to avoid any delays or your application being rejected.

7. Arrange a mortgage in principle

A mortgage in principle will help you figure out what you can afford before you start viewing properties.

Getting this important confirmation will also help you prove that you can afford to buy a property.

8. Make an offer

Looking at how much similar properties sell for in the same area will help you work out how much to offer on a property.

It’s important that your offer is within your budget so that you can comfortably afford it.

Buying a home is a complicated and time-consuming process, but family financial planning will make it less stressful.

Making a will

A will provides peace of mind for your family and ensures your children and partner will be taken care of in the event of your death.

A will is not just about money – it also decides on the future childcare arrangements for your children and is a crucial part of family financial planning.

You can either write a will yourself, use a solicitor or use a will-writing service.

Financial planning for young families: why insurance is important

Types of insurance such as illness cover and paying off your mortgage in the event of death are a crucial part of family financial planning and protecting your family’s standard of living if the worst happens.

Here are some types of insurance to consider:

Life insurance: pays your dependant a lump sum or regular payments in the event of your death.

If your partner and children rely on your income to pay for a mortgage and other living expenses, life insurance is highly recommended.

Critical illness insurance: pays your dependant a lump sum or regular payments if you’re diagnosed with a serious illness such as a heart attack and certain types of cancer.

If your partner and children rely on your income to pay for a mortgage and other living expenses, critical illness insurance will provide peace of mind for your family’s financial future.

Income protection insurance: pays a percentage of your income if you can’t work due to an illness or disability that means you’re unable to work.

If you don’t have access to savings, income protection insurance will provide financial assistance.

Mortgage Payment Protection Insurance (MPPI): pays your mortgage if you have an accident or become ill and can’t work.

If you have little savings or debt, MPPI can help ease money problems if you’re unable to work.

Family financial planning is important

Now you know why financial planning, for young families, in particular, is important.

Use our financial tips to help you feel confident about budgeting and planning for your family’s financial future. 

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