Build a robust financial plan – case study

Owen and Paul, both 45, work in marketing and are married with two children, aged two and six. They earn £70,000 and £100,000 a year, respectively, and as higher earners have always felt financially secure.

One of Owen’s friends recently had a health scare and this has made him worry about how the family finances would stack up if the worst were to happen to him. Owen and Paul decide to speak to a financial adviser to find out if their finances are really as healthy as they seem.

The adviser explains that while Owen and Paul have a high income, they also have large outgoings, particularly when it comes to their mortgage, childcare and school fees. In total, Owen and Paul’s essential expenditure is £8,000 per month, and they need both sets of income to cover this.

As a first step, the adviser recommends that Owen and Paul build up a pot of easily-accessible savings of at least £48,000. This is equivalent to six months’ worth of essential expenditure, and would offer breathing space if one of them suffered a bout of unemployment or they received a large, unexpected bill. The adviser also recommends that Owen and Paul insure their income against long-term illness. It isn’t something they really want to think about, but their friend’s health scare came as a shock and made them realise that illness can happen to anyone. Owen decides to take out an income protection policy, which will pay out a regular income if he can’t work due to accident or illness. Paul is already entitled to group income protection from his employer and so he doesn’t require cover.

Next, the adviser suggests taking out a joint life insurance policy. This would help to pay off the mortgage if Owen or Paul were to die early, thereby easing the pressure on the household finances. An additional type of life insurance called family income benefit would pay out a monthly payment, helping to cover things like nursery and school fees.

Finally, the adviser encourages Owen and Paul to check their wills are up to date and get legal advice on ensuring their wishes will be fully met.

Owen and Paul leave the meeting feeling far more confident about their family’s financial security. While they don’t know what is around the corner, they can rest assured that the financial side of things is taken care of.

The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy.