During the pre-flight safety briefing the flight attendants always say to parents that if the oxygen masks should drop down, ‘Put your own mask on first then look after your children.’ In effect you can’t help your children unless you first look after yourself. I apply the same philosophy to my financial planning.
I’ve kind of divided the things I think I need to do to protect our own financial health into six aspects. While these may be random to me, I’m pinning my hopes on them leading to financial independence for both me and my daughter.
1. Grow Our Net Worth
I track my net worth as a financial stock-take of where I am. Net worth is simply how much we own minus how much we owe. I covered the sort of things I track in How Much Are You Worth? and shared the spreadsheet I use. There are three reasons why I make this financial stock-take.
Net worth tells me where I am today so that I can see if I’m heading in the right direction in a year’s time. Each year I hope to be better off than the year before, unless a major crisis falls.
My net worth will be part of what I live on in retirement, so I need to make sure I have enough.
A good part of my net worth will be what I leave to my children. When the time comes I want to do this in a tax efficient way. I figure I’ve paid tax on my earnings as we’ve built up this wealth, so to then pay tax on it again is like being taxed twice for the same money. My understanding of the basics of inheritance tax is outlined in 5 Things I’ve Learnt About Inheritance Tax.
2. Take Control of Our Budgets
At the end of the day I realise that in order to grow my net worth I have to know what I spend and where I spend it. I also have to know my income and make sure my outgoings are less than my income. There’s no avoiding that one!
Statistics suggest that most people who are well off have a budget. I haven’t always had a budget, and I haven’t always had control over my finances. I don’t think of a budget as a penance for the rest of our lives because of past sins, I think of it as the road to guilt free spending. If I know what I’ve got, then I can spend on those things I want to and not feel guilty. When I don’t overspend at the end of each month, I know I can make my long term goals achievable.
While my budget isn’t perfect, it gives me the feeling of freedom. It restores a feeling of control over my life. Like everyone else, I have to cope with stress, a chaotic life, and children who are blissfully ignorant of the cost of living. The last thing I need is run-away finances to add to the mix.
I hope over the next few months I will be able to share some of my budgeting strategies, but space doesn’t allow me to here. I can say, though, I use a free app called Wally.
3. Plan Our Own Financial Strategies
If budgets relieve my stress, then I like to use this headspace to plan my own financial strategy. That means I think about what my ideal life looks like, and have a plan to get there. I know one day I don’t want to always work in what I’m doing – I’d rather write this blog from a beach in Spain. But for me to live the life I want, I must first make sure my financial health looks good.
I’m sure we all go above and beyond the call of duty to our children, but I also think we have the right to think about our happiness too. Making a bucket list of what I want to do helps me to realise what I want from life. Of course it’s what’s best for my children, but I need more. Just like them, I’m only alive once on this earth, and I want to feel I had a life that was lived.
4. Plan Our Retirement
Financing retirement has changed so much in the last generation. My parents had a very small workplace pension and rely on the state pension as their main source of income. I think as more and more people are living longer, the strains on the pension system will grow stronger. Pensions might not always be the same. I think our generation is getting used to the idea that our retirement is partly our responsibility.
We are living longer. I want to live longer. I want to travel, experience and do things. I want to know that in the early years of retirement I can do this, and in the middle and later years of retirement I won’t be cold because I’m worried about turning up the heating. But in doing all this, I don’t want to use everything I’ve saved in my net worth because, if I do, there won’t be anything left for my daughter who needs it.
5. Make Our Wills and Plan Our Estates
While my plans might be long, I have got to the point when I think what if. This doesn’t mean I’m going to get taken out on the motorway because of my poor driving skills. It means I have taken the time to do the sensible, safe thing should anything untoward happens.
I must admit I’ve struggled more with this than any other aspect of my financial health. Wills seem straightforward to me for parents with two ordinary children – you expect them to go out into the world and make their own lives after their parents have been SKIing (Spending the Kids Inheritance). For us it’s a little different. Children with additional needs are often more vulnerable, especially financially, and my daughter isn’t any different. I want to know that if my life were to flash before my eyes in the last split seconds of my life, I have protected my daughter to the best of my ability. Life will always be a challenge for her, even with an older sister, and I don’t want to make it harder because I was too lazy to plan.
I am thinking of a trust fund. My research suggests to me that this could be a good vehicle to protect my daughter. It would certainly give us peace of mind. But trusts are complicated, I can’t hide from that fact, and it needs planning. That is one of the many things about my finances I’m setting up over this year, and I will share my experiences as I go on.
6. Think Ahead for Our Children’s Finances
A Trust Fund might offer the protection I want, but it doesn’t escape the fact I still need to actively plan my daughter’s finances. While she might get a job (if not she will receive some benefits), unless she is very lucky she won’t necessarily have a huge income.
I want my daughter to live the best life she can. I want her to have all the things I have. I want her to have enough money to not only meet her costs of living but also to have those luxuries that make life more than an existence.
I think I need to plan her net worth, her pension and other things like her credit score which will affect her life. This isn’t me being a controlling dad; it’s me using what I have learnt so that her ignorance in this field doesn’t mean she has to live a life of poverty. We all want what’s best for our kids. We brought them into this world, and all we want to them happy.
I think my financial health is vital to the financial health of my daughter. If I don’t look after myself I cannot look after, or protect, her. The first thing I need to nurture is my net worth. That is not being greedy, that is being practical. This is done through my budget. After this I’m free to plan a financial strategy for us so that we live and do what we want in our lives, for only then will we be happy, and from that we can give more to our daughter than just money. If we plan our retirement we don’t drain our net worth so it is empty, and nothing in it to leave to our children. While this is my ideal financial life, my overarching plan, I want to make sure that for the moment I have a will in place so if anything unexpected does happen, things won’t be as disastrous for my daughter as they might otherwise be. Finally, I want to plan her finances so she isn’t poor.
I won’t pretend that I have all of the above sorted. I’m on this journey too. I am learning too. I don’t ever think I will know all the answers, but I want to share my journey with others because I think it’s easy for people in our positions to put our heads in the sand. I must admit I’ve had a poor will for many years, presuming that my family will look out for my daughter. They will, I know. But the point is they won’t do what I would hope because I haven’t told them exactly what I want. That is my fault, not theirs. If I want what’s best for my children, I have to take responsibility for my own financial health. I can’t make these plans after the plane has crashed.