Starting a family is a very exciting time for couples. But there’s no getting away from the fact that there will be a huge impact on your finances. The average cost of raising a child to the age of one in the UK was estimated to be £11,498 at the last count in 2016 – a 2.4% rise from 2015, according to insurer LV=. This figure is made up of costs such as food, furniture, clothing, car seats, buggies, toys and childcare. As well as the spike in spending, there are some other money matters to think about. Here are the top six things you should address:
1 Emergency fund
Soon-to-be parents should set aside an emergency fund that they can draw on when the baby is born. Commit to saving a little each month by setting up a standing order or direct debit from your current account as soon as your salary is paid in.
2 Maternity pay
Talk to your employer about maternity pay. Some will be more generous than others. You might just get statutory maternity pay, which is all will you will be eligible for if you’re self-employed. You get 90% of your average weekly earnings (before tax) for the first six weeks and £140.98 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks. Also ask about any other benefits. They may include the ability to buy childcare vouchers at a tax-saving discount for when you return to work. There might also be crèche facilities or mother and baby clubs organised by the company.
3 Bringing up baby
Some couples decide that one of them will give up work and stay at home to bring up the baby. But losing a salary can be a huge drain on the family’s finances. It pays to work out a budget now and decide how much you can realistically afford to live on. Don’t forget to consider the cost of childcare fees if you decide to return to work. Families on a modest income may be entitled to child tax credits and the government has introduced a number of initiatives to help parents.
Working parents can apply for tax-free childcare account. This means they will receive a government top-up of £2 for every £8 they pay into their tax-free childcare account. In addition, from September 2017 parents of 2-3 year olds will be eligible for 30 hours of free childcare a week, provided they work at least 16 hours a week and earn less than £100K per year.
The Childcare Choices website provides information on the government’s childcare schemes and explains how parents can pre-register or apply. It also includes a childcare calculator to show eligible families how much they could receive.
4 Junior ISA
When the baby comes along you will be able to open a junior ISA and start saving for their future in a tax-efficient way. Like the adult version, it can hold cash as well as a variety of investments, including individual stocks and funds. Advisers are unanimous that parents should opt for a stocks-and-shares account for those investing when the child is young. Over 18 years these will outperform cash, especially given the current low interest rates.
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5 Life insurance
It’s not a cheery prospect, but it’s important to consider buying life insurance for both parents. It is worth thinking about how to provide additional income or capital on death to help the survivor and your family. You should also consider putting policies in trust as this makes the process of payment easier and quicker should the worst happen.
6 Make a will
Making or updating a will is important as it details your wishes including your nominations of guardians to raise your children in the event you are unable to. A will ensures the right people benefit from your estate and your instructions will need to take into account how you will provide for your children. Using a solicitor will ensure it’s all done properly.
There are lots of freebies available for new parents. Register your pregnancy and due date with the likes of Boots, Mothercare and Pampers for money-off vouchers and free samples.