Tips for the years of living expensively

The second part of a series on financial planning through the stages of life

THE tell-tale signs range from not liking Top of The Pops any more to attending PTA meetings. Once you reach your 30s and 40s, it becomes increasingly hard to claim gilded youth status.

The 30s and 40s are in-between years, in financial as well as other terms. For many, expenditure is likely to peak at some point in these two decades, particularly if you start a family. At the same time, it is important to start to save for future commitments, whether school fees or your own retirement.

Whatever your personal circumstances, financial planning is crucial in managing these opposing spend and save pressures. The sooner you start planning, the better you will be prepared for life's inevitable financial surprises.

Apart from pensions, the other key areas are:

q An emergency fund. Keeping a reasonable amount of money in an instant- access bank or building society savings account is a useful buffer against sudden unexpected calls on your cash.

q Cutting short-term borrowing costs. Most credit and store cards are prohibitively expensive to borrow on. So is the typical high-street bank overdraft. Switching any debt that is likely to roll over for a few months or more to a personal loan will produce immediate savings. And moving to a bank account with an overdraft that charges interest only, offered by the likes of First Direct and Abbey National, will save money every time you go into the red.

q Consider remortgaging. If you have already got a mortgage, work out whether it is worth switching it to capitalise on the current fierce competition between lenders.

If the monthly saving on the new loan outweighs the costs of switching within a reasonably short time (a year or so, say), it is probably worth doing. And now is a "fantastic time to remortgage to a fixed-rate or discounted deal", advises Ian Darby at London- based mortgage broker John Charcol.

Good deals highlighted by Mr Darby include Britannia Building Society's five-year 7.24 per cent fixed rate (compared to a typical 7.99 per cent variable mortgage rate) and a raft of two-year, fixed-rate deals at around the 4.99 per cent mark. But watch out for redemption penalties - most two-year fixed deals now commit you to keeping your mortgage with that lender for five years, or facing charges of up to three months' interest. The risk is that you get locked into a high variable rate after the fixed deal is over.

q Protect your family. If you have children, it is essential to check that you and your partner have adequate life insurance to cope financially should either of you die. Check the amount of cover you have from your employer and any private insurance policies and, if needs be, top it up. As a rule of thumb, the life insurance industry recommends cover of up to 10 times salary, although few people want, or can afford, to buy this much insurance. The table shows some of the cheapest rates for straightforward term insurance policies (which pay out a lump sum if you die during a set term).

q Protect your income. Recent severe cuts in the state invalidity benefit have left everyone far more vulnerable to the risk of getting into serious financial straits should they be unable to work for a long period because of illness.

Insurance policies pay a monthly income, tax-free for the first year on personal but not company-organised plans, if you cannot work because of illness. They are far from perfect - both the cost and the extent of the cover leave much to be desired. But the protection offered is important.

Premiums vary according to your occupation, but they are invariably lower the younger you buy. As an example, a typical Friends Provident policy for an office worker, paying pounds 1,000 a month benefit, would cost pounds 27.15 a month if you took it out aged 25; pounds 34.28 a month if 35; and pounds 48.08 a month if 45.

q Check your car and house insurance. See whether you can get a better deal when these policies come up for renewal. It is easy to unwittingly have the wrong level of buildings or contents cover, leaving you either with a shortfall should you have to claim or paying over the odds on premiums.

q Save for the medium to long term. If you can afford to do this, make the most of tax-efficient investments. Tessas are in effect five-year building society savings accounts that offer tax-free interest on investments of up to pounds 9,000. If you want an investment that also offers the prospect of capital growth, both unit and investment trusts are ways of investing in a pool of shares. You can put up to pounds 6,000 a year into either type of investment fund via a personal equity plan, which means that both your income and any capital growth are tax-free.

q Save for school fees. If you want private schools, you must prepare for a huge bill - the latest estimate is pounds 100,000 for a child born today.

q Check your tax coding. If you are married, make sure you are claiming the married couple's (tax-free) allowance.

q Make a will. This may seem an unnecessarily gloomy note to end on, but if you die intestate, it can create huge problems for your family.

Good and bad deals on life insurance

Insurer Couple aged 35 Couple aged 45

premium (pounds ) premium (pounds )

Cheap Legal & General 24.49 57.47

Scottish Widows 25.75 57.65

Scottish Provident 26.46 57.69

Costliest Clerical Medical 41.30 94.70

NPI 50.53 97.42

Scottish Life 52.10 119.50

The monthly premiums shown are for a 15-year policy providing pounds 100,000 of cover for a couple who are non-smokers. Rates correct as at 17 October. Source: Premier Investment Group.