8 ways to organise your family finances

Clean up those spending habits

Subscriptions you’ve signed up for and forgotten all about. Amazon deliveries. Takeaways. Coffees on your commute to work. We know the drill. Being on top of ‘everything’ 100% of the time is not as easy once you’ve entered the world of parenting.

While we can’t magically add hours to your day to help with admin, we can steer you in the right direction when it comes to your family finances.

Begin by breaking down your expenses into some sort of spending tracker. Whether you’re an Excel lover or more of a visual planner, it doesn’t make much of a difference. As long as you’re actually keeping tabs on your outgoings.

Once you’ve picked your go-to, you can start off by splitting your monthly income from your outgoings. A good way to do it is to divide your current monthly payments like your mortgage and your grocery aside from your savings and your total income.

A rule of thumb is to begin dividing them into three columns:

1. Your monthly incomings - including your wages after tax and any additional income you may have coming in;
   
2. Your monthly outgoings - including any fixed expenses like bills, mortgage or rent, and any variable expenses like a trip to visit Nana up North, or your family day out at Legoland;
   
3. Last but not least, make a note of your monthly leftovers. Make a note every single month of the exact amount. This will help you into organising your finances further.
   

You can now grasp how much of it you can save into:

• Your rainy day fund - to cover any unexpected expenses like changing the.....of your car or plumbing;
• Your spending money - for anything like dinner dates, baby’s clothing, or your summer holiday
• Your long-term goals - for topping up your pension, kid’s savings and your investments.

You now have a bird’s eye view of your finances. Hooray!

Ready to dig a bit deeper into your spending patterns?

Declutter your outgoings

Don’t freak out just yet. Yes, you may have spent a bit too much here and there. But what’s important is that you’ve taken the first step in bettering yourself. Do you notice any patterns? Are there any areas you’re spending too much on that you didn’t realise?

The next step is to pinpoint what expenses are not helping you reach your long-term goals. Maybe ask yourself if there’s a way for you to reduce X cost. What’s key now is to lower your outgoing payments, not eliminate them all together. For example, have you checked if other network providers can offer you a better deal on your phone? Or can you reduce 1 Deliveroo a month and save yourself that additional £20? Is it practical to have Netflix, Disney+ and Amazon prime subscription? Haven’t you just kept on watching Encanto on-repeat for the last 5 months?

We’re not trying to guilt trip you into not spending any money at all. You should definitely make sure to have a pot dedicated for the fun stuff or for treating yourself. Both you and I know very well that as parents we need some self-care too. Whether that is a night out at the Comedy club, or a spa day to recharge your batteries. You choose!

See? It’s not that hard after all. Just begin by dedicating 30 minutes of your time at the end of every month.

It all comes down to changing your old habits into new ones. Your future self will thank you for it. Woo-hoo.

Spruce up your savings

You now grasp how much money comes in every month and how much goes out. Still not sure if you’re on track, why not follow the 50-30-20 rule?

It’s a simple plan that can help you budget your money more efficiently. Coined by Senator Elizabeth Warren, it then went mainstream after publishing her book ‘All your worth’. The rule is straightforward to follow. You should allocate 50% of your take home pay to needs, 30% to wants, and the remaining 20% to savings.

You can then break down your savings even further. It’s normally best to group the savings based on the time you think you’ll need them. For example, by creating three different pots, one for short-term, one for mid-term and one for your long-term goals.

The short-term pot should cover emergencies or one-off expenses like a summer holiday. Whilst the second pot can help you save up for a deposit for your next car or home. Expecting a baby? Or maybe you’re thinking of taking some time off from your career or to changing it altogether. This pot can also be used to create a safety net for those months off work.

Now it’s time to think about the future. Whether you’re trying to put some money aside to cover your kid’s school fees or your expenses during retirement, starting to save up early will help you down the line. This money can be kept in separate accounts and may include any funds tied up in investments. Just remember, this deep pocket can help you reach financial security and success for you and your family. Yay.

With this easy rule in mind, it can really pay-off to look at the interest your bank is currently paying you for your hard cash. A lot of savings accounts offer very poor interest rates. Worse still is that some providers take ages to update the rate of interest they are willing to pay you for your savings. Yawn. So just like your gas or electricity bill, it's good to do some shopping around.

Why don’t you check out a comparison website like MoneySavingsExpert? These are usually a good starting place to show you what the best rates in town are.

Another thing to look out for is high interest-paying current accounts. This savvy option will allow you to maximise the interest on money tucked away with your bank, especially that short-term pot we talked about earlier. Keep in mind that these accounts usually have a limit on the amount they pay interest on, so don’t put all your money into just this one account, as you may be getting very little interest on any money above that limit. Have more savings and not sure what to do with them? It could be good to use short fixed-term savings accounts as they tend to pay a little more interest. Again use a comparison website to find out the best rate out there.

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Think about investing (as sprucing savings can only go so far)

You’ve done the hard work and spruced up your family’s savings. Yay! But you might be looking at your other cash savings pots and thinking - how can you make this cash work harder for you and your family? Well, that's where investing comes in.

If you’re wondering when, how and what to invest in, you’re not alone. The ins and outs of investing can sound scary. Let's not even mention the mind-boggling jargon. It can really put many people off on where to begin. But don't worry, we're here to help you out. Yippie!

Let’s start with the easy one — when should I start investing? As soon as you can. It's never too early (or late) to start investing. The sooner, the better, as this gives time for your money to grow.

So that was the easy one, but what about the how? First, you’ll need to open an investment account. Like your bank account that holds your money, you need somewhere to hold your investments. Now there are a lot of companies out there offering a bunch of investment accounts, but as a general rule of thumb, if you’re over 18 — the ones you’ll come across will be a general investment account, aka ‘GIA’ or an ISA. If you want to invest for your kids, it will usually be through a Junior ISA, or ‘JISA’. Picking a provider that offers these is usually a good place to start before you can begin buying your investments.

What to pick! Well that’s the question on everyone’s lips. There’s shares (think traders shouting BUY and SELL), or bonds (giving your hard earned money to companies to pay you money back regularly for doing so), or funds (a pick’n’mix of shares, bonds and even property). Picking the right one for you depends on a bunch of reasons such as personal taste and how long you want to invest for. But if you’re a fan of not putting all your eggs in one basket, then funds are usually a great starting point. You might also hear people talk about ETFs. These are very similar to funds and are a very easy way to invest in 100s of companies at once.

And if you want to know a little more about shares, bonds, and funds, check out our blog on investing for beginners.

Sure, investing does carry more risk than just keeping cash, but if you’re in it for the long run, investments are much more likely to outperform cash savings. And usually in a big way!

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Grab every slice of the allowance cake

Each year the government bakes a cake and slices this up into several tasty pieces. Now, let’s say each piece represents a tax allowance. Unlike that chocolate cake at your kid’s party, it’s fine to grab as many pieces as you can.

Let’s start with the first piece, which everyone gets — a tax-free personal allowance of £12,570. This means you are allowed to earn money completely tax-free up to that amount. Cha-ching! Even your kids have a tax free allowance. And as they won’t be making a salary, (pocket money doesn’t count), this allowance can come in handy. You can use it for any savings or investments held in your kid’s name that grow in value. Woo-hoo!

Remember those investment accounts we mentioned earlier? ISA’s and JISA’s? Think of these as little boxes you put money into, and if that money grows in value, it won’t be taxed.

Currently you can put in:

• £20,000 into a ISA
• £9,000 in a JISA

This amount is for each tax year, so 6th April to the 5th April. Which means the amount you can put into one of these has just reset. Exciting.

There are two types of ISA and JISA, cash or stocks and shares. The first is what it says on the tin — it allows you to save cash. Whilst the second one allows you to invest. And unlike going to the ice cream shop and only being allowed to pick one flavour of ice cream, the best thing about ISA’s and JISA’s is that you can pick one of each. Yum.

Whereas ISAs can be opened by anyone over 16, (or 18 for a stocks and shares one), JISA’s can only be opened by parents or legal guardians. Guess what though? Anyone can contribute to a JISA, making it the perfect option for grandparents and other family members looking to top up that pot of money. Whilst you have a whole year to think about using this allowance, it’s best not to leave it to the last minute. So why not get into a habit? By regularly chipping away at these allowances you can make the most of them. Hooray!

Another allowance that resets each tax year is your annual pension allowance. Whether you're working or not, everyone is entitled to get basic rate tax relief up to £40,000. This means that when you pay money into your pension, the government will pay an additional 20% to your pension pot. Nice!

This applies if you’re part of:

1. An employee pension scheme - one which gets paid out of your salary;
2. Or a personal pension scheme (one you pay into yourself).

And don’t worry. You don’t need to fill out any sort of online form. The government applies 20% to your pension automatically. This means that if you pay £1000 into your pension, you’ll only need to pay £800 as the government adds the other £200.

Now if your part of an employee pension scheme, there is two ways this is done:

• Gross, meaning money is paid into your pension before your salary is taxed; or
• Net, meaning money is paid into your pension, after your salary has been taxed.

If your employer pays money into your pension before your salary is taxed, this means this amount is not subject to any tax at all, upto the £40,000 allowance. Cha-Ching! If your employer pays money into your pension pot after your salary has been taxed, then as that money goes into your pot, another 20% will be automatically added. A personal private pension works in the same way, meaning if you pay money into a pension pot from your hard earned wages, another 20% is added to this pot. This is done by the company in charge of your pension.

Now, whilst 20% tax relief is taken care of on your behalf, if you are a higher or additional rate taxpayer (40% and 45%), you might need to claim the additional 20% or 25% if the payments made into your pension pot have been done so after you’ve paid tax on your salary. For example let's say you earn £65,000 and pay £8,000 into your pension you’ll be entitled to receive £3,200 in tax relief. £1,600 of that will be added automatically to your pot, however you’ll need to claim back the other 20% from HMRC. And if you don’t claim it back you won’t get that relief.

And here is the scary thing, in 2019 it was estimated that some 8 in 10 higher rate taxpayers failed to claim their full tax relief amounting to around £810m in unclaimed tax relief. Three years on the amount of failed tax relief is likely to be the same, given that many taxpayers who are employees still do not complete a tax return - which is the only way to claim this relief.

You can claim this back for the last 4 tax years, so if you’ve paid into a pension during that time it is worth seeing whether you are owed some tax relief. The best way to do this is to first check in with your pension provider and check whether the money has been paid into your pot, gross or net and then see how much was actually paid in for each tax year. Once you’ve got this information you’ll need to give HMRC a call to claim this backdated pension tax relief.

Also check out this handy calculator which breaks down your tax relief.

Another neat thing about your pension allowance is that it carries over for up to 3 years. So for example if you only contributed £10,000 in the last two tax years then you’ll have an allowance of £100,000 this tax year. Meaning you can get tax relief on any contributions up to that amount.

And pensions aren’t just for the grown ups. Your little ones can also have a pension. You can open a pension for them called a Junior SIPP. These little pension pots allow you to pay in up £3600, and you guessed it, you get tax relief on any money paid into these also. So for example if you wanted to pay in £3600 to into a pension pot for your little one, you’d only need to put in £2,880, with the other £720 being paid into a pot by the government. Just remember that anyone can contribute towards a Junior SIPP, but only a parent or legal guardian can open on behalf of a child.

Dig out your pension paperwork

It’s always a good time to keep an eye on your pensions, but as mentioned, as allowances have reset, now it’s a really good time to take a look at your pension savings.

If you have moved jobs a few times, this may seem daunting. But it’s super worthwhile as your hard earned savings could be in poorly performing investments or accounts charging a lot. All pension providers are required to send you an annual statement, so this is the best place to start. However if you have not received one of these in a while, then the next best thing to do is contact your employer or former employer and get the details of who your pension is with. Once you’ve got this information you can then contact the provider and request details of your current pension value and see how much you’re being charged by your pension provider.

Seeing how much you’ve got tucked away will also help you see how much you need to meet those retirement dreams. Knowing how much you’ve got, you’ll be able to set yourself a target on how much to save, meaning that around the world trip in 360 days can come true! And remember even putting a tiny bit more in extra could make a huge difference, especially if retirement is still a bit of a way off.

For those of you juggling multiple employee or personal pensions you’ve built up over the years, there are plenty of low cost providers who make it easy peasy to combine all those pensions. Meaning that you can really keep on top of that retirement dream fund.

Tax credits and Rebates

Tax-free childcare

So you’ve got your little one into the nursery you love. But then comes the nursery costs — eek! Well you're entitled to £500 every 3 months to help with the costs of childcare. So for every £8 you pay for childcare the government will pay £2. Let’s say you get a bill from the nursery for £500. Well you’ll only have to pay £400, with the government paying the remaining £100.

To get tax-free childcare all you need to do is register for a childcare account. The process is very simple. All you’ve got to do is head over to the government website and apply. Once your account is set up, you can use it to pay your nursery, nanny or even school clubs and sports activities. Phew!

‍On top of that, if your little one has a disability, you could get up £1000 every three months or a total of £4000 a year. To find out more about other child tax credits or allowances you may be entitled to, check out our blog on childcare.

Working from home tax credits

If you have been asked by your employer to work from home for at least one day day since the 2020 lockdown then you can claim relief worth up to £6 per week from HMRC.

It’s really simple to do and for the 2021-22 tax year, you don’t need to send any documents, just go online and make the request to HMRC who will change your tax code (meaning you pay less tax).

And the good news is that HMRC has said you can do the same for the 2022-23 tax year.

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Wills - link to family upsizing and downsizing etc.

Whether you’ve already got your kids or just welcomed a new little one to the family, setting up a will for your children is one of the main ways to protect their future.

For the financial side of things, a will sets out who gets what. It allows you to gather all your financial accounts and properties you may hold in one place. This way you’re sure that nothing will get lost in the process. For example, unknown pensions and savings pots. It will also prove to lessen the burden during an already difficult time.

There are also emotional reasons on why you should write a will. Most parents assume that, if they die, their children will automatically be looked after by a close relative. However, unless you have a will which dictates who ‘the legal guardian is’, then the decision is actually down to the courts. By writing a will you can ensure you have the final say.

If you are curious about finding out more, our favourite will writer is Farewill. Their experts’ platform can write a will for you with a range of prices starting from £90 or £140 for couples.

Don't forget, when you invest, your money is at risk. You might end up with more than you put in - or you might end up with less. And remember that what you're taxed depends on your own personal situation, and that can change in the future.

Got questions about our investments? We’re here if you ever want to chat: contact@prosper.com

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