Having a Baby? Top Financial Tips for New Parents
When you become a parent, you will face all manner of challenges. Adjusting to a new way of life can be tricky and there are so many new things to get your head around. One important area is your finances. Your financial situation is likely to be turned on its head and you will be in uncharted territory.
When it comes to the financial changes having your first child will bring, there are three universal truths that all parents can attest to; 1. Children cost a lot; 2. Your spending habits will change significantly and; 3. You will have much less disposable income.
With this in mind, we’ve compiled a list of the top 10 financial tips for new parents:
1. Get your finances organised
Your financial situation is about to change beyond all recognition so now is a great time to take stock. Once the little one arrives, time will be at a premium and you’ll probably have other things to focus on. So take the time now to work out your future income and likely expenditure and take stock of your investments, saving, pensions, insurance and any other financial products. Try to do a bit of a ‘spring clean’, switching where you need to do and ditching or consolidating any old policies to make your life simpler and lessen your financial stress. Life’s about to get busier so make sure your money is well under control.
2.Take out insurance
No parent likes to contemplate their own mortality or the thought of getting a long-term serious illness but it can happen to anyone at any time. The difference soon will be that you have a family to support and to provide for financially. Life insurance and critical illness are crucial to protecting your loved ones and making sure you can afford to take care of your child even if the worst happens. You may also want to think about protecting your income in case you lose your job.
3. Try to save up
Depending on how close the big day is, it might already be too late, but if you are able to, save as much as possible. If you or your partner are taking time off work to look after your newborn, your household income is likely to take a hit. Make sure you have enough in reserve and plenty in case of emergencies or unforeseen events.
4. Know what you’re entitled to
Parents get a number of perks, but knowing what you’re entitled to is sometimes difficult – you’ve never done this before so how should you know this stuff? Almost everyone is entitled to claim Child Benefit – just over £80 of free money from the government paid into your bank account each month. Also, check out ‘childcare voucher’ schemes as soon as you can as it could save you thousands when the time comes. Pregnant women are entitled to free dental care and prescriptions for the period of their pregnancy and the following 12 months so take advantage of this. Make sure you apply for ‘child tax credit’. Pretty much everyone gets this and it’s handy to pay for those baby essentials. Check your maternity/paternity pay and rights at your work and remember that the rules have recently been equalised if you are a father and want to take extended paternity leave.
5. Calculate your costs
How you spend your money is going to change radically. It’s really hard to estimate how much you will spend and what you will spend it on – it’s all a bit of a mystery. If you can, try to take your best guess and work out a basic budget. As you learn more about being a parent, review your budget and update and refine it. Surveys show that the first year of a baby’s life can cost between £1,600 and £7,200 (excluding any child care) so it’s not an insignificant amount. If those figures sound scary to you then you might want to skip the next sentence and head to the tip 6 below. The estimated total cost of raising a child to the age of 21 in the UK is now estimated to be around £232,000. Ouch.
6. Avoid bad decision-making
You are going to be tired. Think about the most tired you’ve ever been and times it by 10. That’s the life of a new parent. You’re also going to be really busy – caring for a helpless human being who depends on you for absolutely everything. Now, a lack of sleep and a lack of time equals bad decision making. When we are tired, our judgment goes and we can end up making the wrong choices. We also tend to put things off until we have more ‘head space’. When it comes to your money, beware of this and try to question what you are doing more. Whether it’s an unnecessary impulse purchase or dealing with some important financial paperwork, try to take a little more time or maybe get some input from your partner or a relative before committing to anything major.
7. Think about savings for your child
You’re not even a parent yet but it’s never too early to start thinking about saving for you child. You may get some cash from relatives when your little one is born or you may want to put something away for them. There are lots of options. You could save it your own name so you keep total control. You could take out a Junior ISA when they are born and get a tax-free return. They get access to the fund when they turn 18 so might end up blowing it so bear that in mind. The other option worth considering is starting a pension. ‘A pension?’ I hear you say. Yes, a pension can be started at any age and has massive tax breaks so your child’s money can grow even faster than in an ISA. The major disadvantage (or is it an advantage?) is that they can’t touch it until they’re at least 58 years old.
8. Control your spending
We’ve already talked about your spending habits changing massively and how expensive kids are. But there are things you can do. Experienced parents learn this stuff, but those just starting out often fall into the same old traps. Firstly, newborns and very young babies grow at an extraordinary rate. So fast that they usually grow out of clothes and toys way before they ever wear them out. You may be used to paying for quality clothes for yourself and have an innate burning desire to kit your baby out in great quality stuff but, for most people, it’s just a waste of money. The same is true for toys. Let people get you gifts, look on eBay and in charity shops, check social media for unwanted baby items, go to NCT sales and shop savvy. Not only that, but your friends or relatives will probably be only too happy to give you their ‘hand-me-down’ toys and clothes to get them out of the house.
9. Update your will
Everyone with any assets such as savings or a house, and loved ones they’d like to look after, should really have a will. When you have a child, it’s really important – not only to ensure your assets get passed on how you would like, but also to document who you want to look after your child should the worst happen to you and/or your partner. It’s well worth addressing this as soon as possible, both for your baby and for your own peace of mind.
10. And finally… enjoy every moment
Having a child will probably be the toughest job you’ll ever have – but it’s also by far the most rewarding. Babies grow up so fast (it’s a cliché but it really is true), so try to spend less time worrying about your money and more time enjoying life with your baby. Get on top of your finances now and get prepared. When the big day comes, you’ll have one less thing to worry about and can look forward to your new life as a parent.
If you would like to discuss any of the issues raised in this article, please get in touch.