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Financial planning during the cost of living crisis: 5 top tips for dads

Category: News

Father’s Day might be over for another year, but the current cost of living crisis means that dads everywhere are likely to be facing financial challenges.

There are some simple ways that you can help your children financially – and without upsetting your long-term goals – as a father, parent, or guardian, whether your child is 6 or 66.

Keep reading for five of them.

1. You need an emergency fund

An emergency fund is a must whatever your stage of life and only becomes more important once you have dependents.

If the loss of your income – whether through accident, illness or redundancy – would make it difficult for your loved ones to pay household bills, start building a rainy day fund now. What’s more, tell your children to build one too!

Put aside three to six months of household expenditure to tide you over should your income stream be cut off.

Remember, though, that in the current high inflation, low interest rate economy, holding too much in easily accessible cash can be a bad idea. Inflation effectively lowers the value of your savings in real terms, so hold only what you need.

2. Start saving for your child’s future early

The earlier you start saving for your child, the greater their chance of being financially stable later in life.

You can open a Junior ISA (JISA) on their behalf the moment they are born and (for the 2022/23 tax year) contribute up to £9,000 into their account each year. Grandparents, relatives and even friends and family can contribute too.

JISAs are incredibly tax-efficient. As with an adult ISA, there is no tax to pay on interest accrued in a Cash JISA and any profits earned in a Stocks and Shares JISA are also free from tax. You can opt for one of each, but the £9,000 will be split between the JISAs you hold.

While it might seem too early to think about your child’s retirement, pensions are another incredibly tax-efficient product. Starting early will allow your child’s fund the chance of decades of investment growth and compounding, helping to ensure their financial stability.

3. How to open the Bank of Mum and Dad

A recent report in the Telegraph suggests that one in seven parents are withdrawing pensions or unlocking the money tied up in their homes to help their children through the cost of living crisis.

While you’ll want to support your children financially if you can, there are potential long-term consequences associated with both of the above options.

Taking money from your pension earlier than planned could leave you with a shortfall in retirement. This could mean you have to:

  • Work for longer
  • Re-examine the type of lifestyle you can afford
  • Budget more carefully to ensure you don’t run out of money.

Equity release, meanwhile, can be a great option for some. You’ll need to be aware though, that, it will reduce the value of your estate and can affect your eligibility for some benefits. Speak to us if you are considering a home reversion or a lifetime mortgage.

4. Consider giving while living

One tax-efficient way to help your children financially is to use HMRC gifting rules to give a living inheritance. These also have the benefit of lowering the value of your estate for Inheritance Tax purposes.

You might use the:

  • Annual exemption – this allows you to gift £3,000 a year tax-free, to one person or split between as many as you like.
  • Regular gifts from income exemption – gifts can be made for any amount, as long as they are made regularly from your income and they don’t reduce your standard of living.
  • Small gifts exemption – any gifts of up to £250 can be made tax-free from normal income.

You can also make potentially exempt transfers (PETs). These allow you to give unlimited gifts that become tax-free if you live for more than seven years after making the gift. If you die within seven years, IHT is payable on a sliding scale.

5. Put a will in place

A will is the best way to make your wishes known and to ensure that your children receive an inheritance when you die.

Around half of UK adults don’t have a will, so if you are one of them, put a will in place now.

It’s also important to remember that life events can change your priorities. Once you have a will, be sure to revisit it regularly to ensure it still reflects your wishes.

Get in touch

If you would like help setting up a pension or JISA for your child, or you have any questions about providing financial education to your children, speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.

Please note

The value of investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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