Having a baby is a big change in your life but it can also be a big change to your finances as well. Finding the cost for another person and saving for that child’s future can be a worry. With the reduction in earnings as well during parental leave, a strain can be put on your finances. You need to be aware of the facts, work out a plan and start saving early. Here’s our guide for how to be financially ready for a new arrival.
Knowing the facts
- If you work for a company, even if it is your own company, you can apply for statutory maternity pay for 39 weeks. You can take 52 weeks off but you will only get paid for 39. For the first 6 weeks you will get 90% of your average earnings before tax, then the next 33 weeks you’ll receive £139.58 per week or 90% whichever is less and then the final 13 weeks is unpaid.
- You may also only receive statutory pay from an employer providing you have worked for 26 weeks by the 15th week before your due date. If you don’t qualify for statutory pay because you’re self-employed, haven’t worked for long enough, or your average pay is less than £112 a week, you can apply for maternity allowance.
- You may also be eligible for shared parental leave, up to 50 weeks’ parental leave and 37 weeks’ pay shared with your partner. You would have to work out what is financially better for you and your circumstances.
- If you or your partner earn between £50,000 and £60,000 a year, you will still receive Child Benefit but you will have to pay back 1% of your Benefit as income tax for every extra £100 you earn over £50,000. If your individual income is more than £60,000 a year, you have to repay the whole amount as Income Tax. You will need to complete a Self-Assessment tax return to find out how much you would have to pay. If you are a business owner it is important to factor this into your financial plans and make your accountant and financial adviser aware.
- Work out how your income will be affected and look at what extra income you will need during this period. Use a budget planner online if needed https://www.moneyadviceservice.org.uk/en/tools/budget-planner
- Work out how much you need initially. Don’t forget you will get a lot of gifts and hand-me-downs so don’t plan to buy too much, buy non-essentials second-hand, visit baby sales and consider samples and vouchers available for nappies and other accessories. According to the Money Advice Service a baby can cost between £1,600 and £7,200 in their first year. They have a useful calculator that you can use to see what your choices would add up to https://www.moneyadviceservice.org.uk/en/tools/baby-cost-calculator
- Don’t forget to plan for childcare. In the UK, the average cost of sending a child under two to nursery is £115 per week, part-time and £212 per week, full-time. Different methods and locations will vary this cost but it gives you an idea of what you need to plan for.
Make a financial Plan
- You will need short-term savings to cover expenses and income when the baby arrives and long-term savings to cover childcare, education and University, first home deposits and perhaps a car amongst other expenses. By making a financial plan now ahead of time you can be prepared for when the baby arrives and have the peace of mind of knowing that your finances are being taken care of.
- You can plan to maximise tax-free allowances such as ISAs and Junior ISAs when baby arrives. Junior ISAs can only be taken out by a parent but can be paid into by grandparents.
- You should put in place life assurance if you haven’t already. Now you have a dependent it is even more important that you have cover in place. You may wish to consider Life and Critical Illness, Family Income Benefit cover and Income Protection.
- In general, it would be advised to review all your insurance, some car insurance policies for example don’t cover car seats or pushchairs.
- If you haven’t considering making a will or your will needs updating to include baby and a guardianship clause, then it is important to take advice and take necessary steps. If you are not married it is even more important. Don’t forget Grandparents have no automatic right for custody should anything happen to you both, unless you have a guardianship clause correctly drafted in your will.
- Putting in place a pension for your child may be of benefit in the long-term.
- Review your financial plan regularly as your needs as a family will change over time and it is important to adjust your financial plan to match your needs and attitude to risk.
It’s important to get financial advice for any life changes including having a baby. We can provide a free initial Investments and protection Review that will help you work out what actions you need to take and where to start. Speak to us to book a review today.
Please note any opinion in these articles is the opinion of Aiming for Utopia Limited only. No action should be taken on the basis of this information alone and we always recommend you seek independent financial advice. We cannot be responsible for the accuracy of content on third party websites.