The coronavirus pandemic has affected everyone’s finances differently. While those with a steady income have been able to save, others have struggled to find work or to manage on just 80% of their normal pay.
A recent report from LV= suggests that half of parents and grandparents have helped grown-up children financially during the pandemic. The average cost of that help is £1,300, although 1 in 50 have spent £10,000 or more.
You might worry about your child’s education, job security, or mental health. Supporting them financially, if you can, is only natural. But doing so in a way that doesn’t detrimentally impact your aspirations is vital too.
Having a long-term financial plan in place can help you support your child. Keep reading to find out how.
1. The importance of an emergency fund
The last twelve months have demonstrated the importance of having a “rainy day” fund.
It can help cover bills and day-to-day costs should an emergency occur. This might include redundancy, illness, or sudden and unexpected expenses.
We would recommend an emergency fund sufficient to cover three to six months’ worth of living costs. This should cover you in the short term without the need to dip into other savings or investments.
It can also be used to help loved ones but as we will see later, you should encourage your children to have an emergency fund too.
2. Understanding your retirement plans
If you already have a financial plan in place you’ll know when you plan to retire, your desired lifestyle in retirement, and how much you will need to make that a reality.
A recent FCA Financial Lives 2020 survey confirms that nearly three in five (58%) of those that retired between March and October last year did so because of Covid-19. Reasons included redundancy, the need to shield, and helping children and grandchildren.
However much you want to support your child, you should not sacrifice your retirement to do so.
If you have considered accessing pension funds or reducing your contributions to help a loved one during the pandemic, remember that your pension is designed to provide you with income for the rest of your life.
Last month, Richard looked at four reasons why you might opt to take your pension as a last resort. These included the difficulty of budgeting for a 30- or 40-year retirement, unexpected tax traps, and estate planning.
Be sure to speak to us if you think helping a loved one financially might be affecting your long-term plans.
3. Planning for later life
The amount you spend in retirement won’t be static. You might have big plans for those years immediately after you finish work that could be jeopardised by overspending now.
A good financial plan will include contingencies to protect you in retirement, by earmarking funds for your own later life care, for example. Having this money set aside can give you and your family peace of mind and is a vital part of your retirement plan.
Balance the needs of a loved one now against the financial impact in later life and only pay out what you can afford.
Speak to us and we can re-examine your current plan, helping to free up the money you need without causing financial instability in the future.
4. Providing non-monetary help
Financial help in the short term doesn’t have to mean handouts. Allowing your child to live with you rent-free, for example, might allow them time to get back on their feet.
You might be able to help them look for work, provide contacts to improve their networking, or provide employment for them within your own business. You will also be at hand to offer the emotional support they need.
Where a financial handout is necessary, always be clear on the parameters. What is the money for? Is it a gift or a loan? If the latter, how and when will it be paid back?
5. Passing on financial lessons
With an emergency fund in place, a firm grasp on your cash flow, and a plan aligned to your long-term goals, you will be confident and in control of your financial future.
This stability comes from hard work and learning valuable financial lessons. Be sure to pass these on to your children.
You might help them budget effectively through managing their cashflow, assert the importance of saving for a pension early or be sure they understand the value of receiving professional financial advice.
Get in touch
Your instinct will be to help your child if they are struggling financially but it is important that you do so without detrimentally affecting your plans.
A good retirement plan will allow for contingencies, giving you the opportunity to support your child while maintaining financial stability and peace of mind, now and in the future.
If you’d like to discuss helping a child through the pandemic, or any aspect of your long-term financial plans, please contact us today.
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