Milestones: Financially Planning for Having Children

It’s no secret, babies are expensive! The latest Child Poverty Action Group report shows that raising a child costs couples £150,753. This includes rent and childcare until they are 18 at the minimum standard of living.

Do you have enough spare cash to foot the bill?

If you’re planning on having children, you’re going to want to plan for them financially. The sooner you start the better!

Make sure you start preparing before the baby arrives

It’s important to work out exactly how much you think you’re going to need to spend on your baby. Take into consideration that you may well be losing a salary for several months at least, so prepare for this.

Think about trying to cut down on your spending and building your savings whilst planning the new addition to your family. The sooner you start preparing the easier it will be.

Research what you will be entitled to on maternity, paternity or shared parental leave

This is possibly the biggest impact you’re going to have to plan for. The loss of a salary can cause a big hole in the monthly finances.

Women get a maximum of one year maternity leave. Although you can go back to work earlier if you chose to. Men get two weeks once the baby is born (and within the first 59 days of birth). Or you could share it.

Currently the Statutory Maternity Pay (SMP) is paid for 39 weeks. You get 90% of your average weekly earnings (before tax) for the first 6 weeks of your leave. For the remaining 33 weeks you will receive £145.18 or 90% of your pre-tax average weekly earnings, whichever is lower.

The same goes for if you have chosen to take Shared Parental Leave. You will receive £145.18 or 90% of your average weekly earnings. Whichever is lower.

SMP is paid in the same way as your wages, either weekly or monthly, and is subject to tax and National Insurance.

When you consider that you could be taking this cut in income for a year, it’s not surprising that one in four parents rely on credit during parental leave.

Evaluate and reduce your current outgoings

Use this time as a great opportunity to evaluate your monthly outgoings.

  • Household bills such as broadband and streaming subscriptions could be trimmed down to save a little cash.
  • See if you can switch your energy supplier; this could save you hundreds of pounds a year.
  • If you have credit cards, there is a chance you could just be paying off the interest every month. Switch to a card with lower interest rates or interest free balance transfer.
  • Pay off as many small debts as you can before your baby comes along. The fewer outgoings you have hanging over your head the better. This will free up more money to fund your baby
  • Where else could you make savings? Maybe you don’t need to be paying a £35 a month phone bill. Switch to a sim only plan and this could be reduced to around £5 a month. £30 may not seem much but it’s around a week’s worth of nappies!

Setting up your home for your baby

It’s so easy to fall into the trap of buying the best and most expensive gear. According to the National Childbirth Trust, new parents spend £3,500 on baby equipment.

Consider whether these purchases are going to be worth spending the money on. Some things you will want to splash out a little more for, such as car seats. Having a safe seat is more important than saving money.

Some things you can buy second hand to cut costs. Look online and in charity or second hand shops for toys and furniture to kit out the nursery. Then sell it on once you’ve finished with it.

Everyone knows that babies will outgrow that adorable but surprisingly expensive dungaree set before they can wear it 3 times or more. Again, look for second hand clothes, they will be barely worn and save yourself a chunk of money.

Raise extra funds

Babies don’t only cost money, but they also take up lots of space. Maybe you need to clear out some of your old equipment from all those hobbies you never quite kept up with.

Selling belongings you no longer need online or at car boot sales is a great way to make space and money for your new arrival.

Your bundle of joy has arrived, what do you have to think about now?

This is the moment you’ve been waiting for. The newest addition to your family has arrived and you are so chuffed!

Make sure your family is protected

There are a couple of things you really should do to make sure your new family is protected should anything happen to you. These are:

Get life insurance

Now you are a parent, someone is depending on you. You have the responsibility of feeding, clothing and sheltering your new baby. What would happen if you were to suddenly be unable to provide for your child? This is why making sure you have life insurance is so important.

Life insurance doesn’t have to be expensive. The price you pay is worked out using a number of factors:

  • Your age
  • Your health
  • Your lifestyle
  • If you are a smoker
  • The length of the policy
  • The amount of money you want to cover

If you are young and healthy then you are less likely to die from a medical condition. Your premiums are likely to be quite low. Going on this theory, the sooner you get life insurance, the better.

Life insurance can be paid out in a lump sum or as regular payments if you die.

There are two main types of life insurance to consider:

  • Term life insurance policies. These run for a fixed period such as 5, 10 or 25 years. They only pay out if you die during the fixed term. There is no lump sum payable at the end of the policy term.
  • A whole-of-life policy. These policies pay out no matter when you die. All you need to do is keep up with your premium payments.

If you need any advice speak to an independent financial advisor.

Write a will

A will is something you absolutely should put together once you have children. A will doesn’t just set out who gets what from your estate. It also explains who you would like to appoint as the guardian off your children, should your death be untimely.

We would always recommend using a professional Will writer. It ensures that your will has been prepared properly. Our sister company Face to Face Estate Planning provides a professional and friendly estate planning service.

Update your home insurance policies to cover the new baby purchases

We have just spoken about how much money it is going to cost when you have a child. Make sure you update your home insurance policies.

Include all of the baby equipment in your contents cover. Then should anything happen, you will be able to easily replace the much needed baby gear.

Check if you have accidental damage cover on your policy. It’s almost impossible to watch your baby every second of the day. There is bound to be an accident or two! Make sure you are covered.

Make the most of memberships and loyalty schemes

 Look out for any memberships or clubs you could sign up for. They will make funding your new life a little easier:

  • See what benefits and grants you may be eligible for, such as child benefit and tax credits.
  • Pregnant women can get free prescriptions and NHS dental care for pregnancy and first year after baby is born.
  • Sign up to memberships that send you vouchers and special offers on baby products. A few examples are Boots, Mothercare and supermarkets.

Going back to work will earn you the extra money, but what about childcare costs?

Once you reach the end of your maternity leave you may choose to go back to work. This added income will be a relief for your finances. It will incur the extra cost of paying for Childcare though.

According to the Money Advice Service the average cost of sending a child under the age of two to nursery is:

  • £122.46 per week – part time
  • £232.84 per week – full time

Once your child reaches the age of three and four they will be eligible to 570 hours of free early education or childcare. This is usually taken as 15 hours each week for 38 weeks.

If both parents are working and earn 16 hours a week at national minimum or living wage and earn less than £100,00 an additional 15 hours a week can be claimed.

The free hours help massively but you will still need to factor in any childcare costs outside of these 30 hours a week.

 

Looking to the future

It’s no unusual for new families to be gifted money once their baby is born. This money tends to end up in the bank. It’s a good idea to open a child trust fund, junior ISA or get child bonds with the financial gift.

Opening funds, ISAs or bonds as soon after the baby is born as possible is always smart. This will get your child off to a good financial start. It also sets a great example to them so, as they grow up, they will become financially savvy.

If in doubt take some advice as this money may be invested for 18 years or more!

When they get a little older remember to introduce them to Eddie Teddie.  He will help educate your child about the importance of managing money.

There are plenty of things to consider for the long term as your family grows. These may be bigger financial commitments such as:

  • Ditch your fancy convertible for a family car with 5 doors and good safety reviews.
  • Will you need to move house as they grow?

One day you may want to put your children through university or treat them to a holiday of a lifetime at Disneyland. Our cashflow planning service is an ideal way to plan for these future goals.

It may seem a little daunting preparing for a family. The right planning and a good understanding of the costs involved can help ease some of that worry. Get in touch with us if you’d like any help or advice.

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