While you can take care of a lot of your personal finances yourself there are times when you need to seek professional and independent financial advice. Of course this will come at a price but it should be reasonable one and as the following article shows good advice can be priceless.
Meet the family
Peter & Jane are both in their early 30’s and have two young children, Ben (7) & Rachel (9). Peter is a Sales Executive for a sportswear firm King Sport, earning £38,000 and Jane works at Cutlers, a local supermarket earning £13,000. She likes it there as it is only small and she knows all of the customers.
They live in a 3 bed detached house with a £140,000 mortgage, have two cars (a Range Rover Sport, and a BMW Mini) and like to go on a family holiday twice a year. Rachel is in to Horses, and has just got her first Pony which is kept at a local Stables.
She also loves to Dance, especially Ballet with Miss Barbara. Rachel is doing well at school and her name is already down for the nearby Whitton Stage School, when she is 11. The school has a particularly good reputation for its Ballet training. Ben loves football, and plays for a local under 8’s team. Rachel stays at home with Mum whenever he plays. Peter takes Ben to all of the Away matches too.
The dreaded knock
It’s 5.30pm on Tuesday afternoon and Jane is just about to take Rachel & Ben down to the Stables when there is a knock on the door. Jane opens the door to find two Police officers standing there with a serious look on their faces, and instantly knows there is something wrong. Peter has had an accident on the Motorway and is pronounced Dead on Arrival at the hospital. Jane’s world caves in around her……….
Two weeks later
The funeral is over and John has called from the King Sport to tell her that there is a Death In Service life cover of £140,000 due to her, so financially things should be okay.
Two years have passed (Present day)
Jane now lives in a terraced house in town. Ben plays his football in the garden, and Rachel has a poster on the wall of the Pony she used to have. Parked in the road is Jane’s 8 year old Ford Fiesta. There have been no holidays but the family have been on a day trip to the seaside. Rachel is just about to start at the local comprehensive school. She still goes to Ballet classes at a local hall on Wednesdays. They get by but don’t enjoy too many luxuries.
So what went wrong?
Rewind to 20 months ago
The building society are chasing for the mortgage arrears, but at last the Death In Service payment arrives. Having paid off the mortgage the family are secure in their home. Peters Range Rover had to go back, and Jane had to pay another £5,000 to get out of the agreement. The Mini also had to go as the payments were too high.
Fortunately they took it back without further charges. Jane had already realised that her small income is not enough to pay all of the bills, and that the £20,000 left in the bank will soon disappear. She decides to sell the house and buy something cheaper, so that she can put some extra cash in the bank.
15 months ago
After moving house Jane now has an extra £40,000 in the bank. Unfortunately they now live too far away to get to the Stables every day, so the Pony has to go. It wouldn’t be fair to make Rachel follow Ben around the local area as he plays football for the team. Her second hand car isn’t very reliable so she can’t take him to his Away games anyway.
Rachel can’t get to the after school classes run by Miss Barbara any more, as they are too far across town in the traffic, so she goes to Miss Vivian at the local church hall once a week. Jane now works for a different supermarket closer to home, earning about the same. She knows very few customers and it is always busy. Sometimes Jane gets angry at Peter for leaving her and the children and changing their lives.
Could it have been different?
2 years ago
The funeral is over and John has called from the King Sport to tell her that there is a Death In Service life cover of £140,000 due to her, so financially things should be okay.
20 months ago
Jane has spoken to the Building society to tell them she is claiming on the Mortgage Protection Life Assurance policy that was set up when they took on the mortgage. The Building society tell her not to make any mortgage payments and just settle up when the policy pays out.
Jane has also claimed upon the separate Level Term assurance that Peter had set up through his Financial adviser, Declan. They weren’t sure they needed it at first as Peter had his Death In Service benefits, but Declan said he had already taken this into account when recommending the additional £250,000 of cover.
Declan also recommended that Jane needed cover of £200,000 to cover child care costs as Peter usually worked late. In total it was an extra £28 per month that they would have preferred not to spend, but Declan explained why it was essential, and pointed out they spent far more on insuring their cars. He then just asked what’s more important to you, your cars or your children? Put that way they could hardly refuse!
15 months ago
The house is paid for, and Jane now has £370,000 left in the bank after buying a new family car. The Range Rover has gone back as it just guzzled petrol, and the Mini was traded in.
Present day
Jane still has £360,000 of the capital left. Declan helped her to invest this in various ways, including Fixed rate bonds at the bank, and a Portfolio of investment funds. Jane receives an income of over £10,000 per year from these to top up her income from Cutlers.
The family have just got back from Florida having spent two weeks in Disneyland. Rachel has just got a new Pony that she has named Bessie. Rachel starts at the stage school in September and is looking forward to having even more lessons with Miss Barbara who also teaches there.
Ben is now playing for the Under 10’s and has been made Team captain. Rachel insists on giving up her Saturdays to support him, as she knows her Dad wanted him to play. They travel all over for Away games, and they make it into a family day out, usually stopping for a meal on the way home.
Today
Next Friday is the anniversary of Peter’s accident and the children are making a trip to his grave to lay flowers. They still all miss him, but Jane says at least they know he has made sure they all still had the life he had planned for them as a family. She thinks he’d be glad to know they are all still having a happy family life.
This article was written by Darren Amos, Financial Planning Designer.
If you would like to contact Darren for help with your financial affairs click here.
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