What are the most important things to take into account when transitioning from an individual financial plan to one designed for a family?
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Normally in helping you develop a financial plan the first thing I would do is ask you to share with me - information about your financial position, employment, family situation, career goals, and your life goals. Some of this information is factual, and some aspirational (personal to you), but both are essential in helping you develop a tailored financial plan.
While we can’t address individual needs in this forum, the following general comments may provide guidance as to some of the areas you should consider when transitioning from an individual plan to one designed for a family.
Your financial plan should be designed to help you achieve what you want to in life. When your circumstances change, such as starting a family, often your goals in life also change.
For a young couple starting their journey in life together, it is important to recognise while you will have many shared goals, there will still be individual goals you wish to achieve. Your financial plan needs to accommodate both the individual goals and the shared goals - much of the time this will require compromise and concessions to be made, and goals to be prioritised. This is the nature of married life.
At some stage you will probably want to have children. This will impact on your financial plan in many ways including the additional cost raising and educating children, reduction in income through career breaks, your housing needs and associated mortgage commitments. Your financial plan needs to provide for the financial impact of increased costs and lower income during this stage of your life – the earlier you plan and take appropriate action the easier it will be during the leaner years.
The ability to make and stick to a budget is important, as is starting to build a buffer (through investments or advance payments on a mortgage). You should review expenditure areas such as mobile phone plans, health insurance, electricity providers and your mortgage regularly to ensure you’re getting the best value. Credit cards are a convenient means of payment, but the interest rates are excessive and you should always try to repay the balance in full each month.
You need to consider risks which may impact on your plan, such as the inability to work due to injury or prolonged illness, permanent disability, and death. Appropriate life insurance should form part of any financial plan, but the amount and conditions of cover need to be reviewed regularly to ensure they remain relevant as your circumstances in life change. You also need to consider whether this insurance is held inside or outside superannuation (or a combination). There are pros and cons with both approaches, and professional advice is recommended.
Your estate planning needs will change. Wills made prior to marriage are invalid (unless specifically drafted in contemplation of marriage), beneficiaries of insurance policies may need changing, and superannuation binding death benefit nominations will require updating. Your Wills should address who will care for your children in the event you both pass together in an accident, and you should consider providing funds (life insurance) in a tax-effective manner (testamentary trust) to cover the costs of raising your children.
Families come in all shapes and sizes, and many family units are formed later in life. While the comments above are based on the needs of young family, many are equally relevant for families a little older. Other financial planning issues for people starting a family unit later in life may include more complex estate planning considerations (blended families), retirement funding, estate tax planning, and the aged care needs of elderly parents.
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