Top 10 tips to baby-proof your finances
Bringing a new life into the world can be one of the most rewarding and exciting things you can do. But as most parents agree, it’s an expensive business. The sooner you start planning, the easier it will be to adapt.
Once your little bundle of joy arrives, you’ll have your hands full with a new set of challenges. Sleeping through the night will soon be a distant memory. And you’ll wonder how someone so tiny can make so much noise. Or how they can need all those nappy changes.
Having children is amazing of course, and so, so rewarding. Yet it’s anything but easy. Especially in the early months when you’re learning the ropes and adjusting to a brand new way of life. Unsurprisingly, it’s hard thinking of anything beyond looking after your baby. But that doesn’t mean you shouldn’t give some serious thought to your finances, too. The earlier you can start planning the better. So if you’re looking to start a family, or have a child on the way, it’s much easier to plan now, than when your baby arrives.
To help you get the ball rolling, we’ve put together our top 10 tips to help baby-proof your finances.
- Plan now, don’t stress later
Sounds simple, doesn’t it? Yet there are so many things to factor in. Not only the extra costs of nappies, pushchairs and a whole plethora of expenses. But any likely reductions in pay that could hit you at the same time. Sitting down and working through your finances in detail will flag up where you are now, and where you potentially need to be, financially. For instance, could you comfortably live off one partner’s income? Or if you’re thinking of going back to work, how much are childcare costs in your area? It’s much better to get ready now, before your old way of life completely changes.
Are you clear on what you’ll do when your baby arrives? Will you go back to work? Or do you dream of quitting your day job to stay at home with the kids? Then what about your partner – how much time do they expect to take off work? Asking these kinds of questions will go a long way to helping you put the right plans in place. And the more you’re aware of how your finances will change, the better decisions you can make.
- Budget, baby, budget
With so many new expenses and potentially a lot less income than before, budgeting should be a top priority. In fact, it’s a good idea to work out the cost of everything you’re likely to need, right now. This could be anything from the cost of baby food, formula, bottles, nappies, laundry detergent and a lot more. If you list them all out, then find space in your budget to cover the cost, you won’t be left short of money.
For example, are there any ways to cut corners and generate extra cash for baby expenses? Perhaps you could cut down on those pricey lattes, find a different way to commute or trade your sporty car for something cheaper and more practical.
If you don’t have a rainy-day fund put aside, then trimming your costs before your baby arrives can help you start building one up. In an ideal world, this would be amount to at least three months’ living costs. But whatever kind of financial buffer you create will make it easier to cope if you take maternity or shared parental leave for more than a few weeks. It will also be a lot less stressful when your baby comes along.
- Pay off any debts
When you’re out in the park or in the swimming pool with your little one, the last thing you want is the spectre of debt hanging over your head. But with your new budget in hand, you can now start finding lots of clever ways to cut your costs, And it can be liberating, too. For instance, realising that you don’t need that monthly subscription you hardly ever use. Or that extra pair of shoes in your wardrobe. We all have our luxuries we could easily live without. So the more money you can free up to pay off outstanding debts will make life a lot easier once your child is born. Yet if it’s not possible right now, then at least put a plan in place to make the minimum repayments. That way as your family grows, your debts will shrink, becoming less and less of a worry.
- Work out your maternity or paternity plan
Taking time off when your baby arrives is vital for both parents. Your baby, too. But of course, it can come at a price. Meaning you’ll need to factor in the effect on your pay, so you can still afford everything. It makes sense then, to know exactly what the maternity and paternity policies are in your workplace. It can vary a lot, depending who you work for, so speak to your company’s HR rep and find out where you stand.
As a general guide, the UK statutory maternity pay (SMP) is paid for up to 39 weeks. This means as a minimum, you’ll get:
- 90% of your average weekly earnings (before tax) for the first 6 weeks
- £172.48 or 90% of your average weekly earnings (whichever is lower) for the subsequent 33 weeks
Factoring in any reductions now will pay dividends when you’re knee-deep in nappies and baby formula. Plus, the time you get to spend with your child when they’re born is time you’ll never get back. And even though your plan might be to go back to work before your statutory maternity ends, it might not be possible. After all, everyone’s different. For some it’s straightforward after a birth, while others may need more time to recover than they expected. Yet with a carefully crafted savings plan in place, you can make the most of a special time, while having one less stress to deal with.
1 Source: www.gov.uk, as at September 2023
- Get help from the government
Whatever your situation, everyone could do with a little help when it comes to having a baby. So why not find out all the support available to you? It could be Child Tax Credit, Child Benefits, Childcare Vouchers or a Sure Start Maternity Grant. What’s more, you could enjoy free NHS prescriptions and dental care during pregnancy.
Not only that, but pregnant employees are legally eligible to take paid time off for antenatal appointments. Meaning it pays to do your research.
Take Child Benefit, for example. It used to be a simple process. You had a child and the government paid you a regular amount to help with the bills. Yet now, it’s a lot more complicated. You get to claim £24.00 a week until your child is 16 (or up to 20, in certain situations), plus £15.90 per child per week if you have more than one child.2 If you or your partner earn more than £50,000 a year, you must pay a tax charge where you return some, or all the Child Benefit you receive.
The government’s Child Benefit tax calculator can help you understand how this works. Though while many higher earners wonder if there’s any point, it’s still worth doing. For starters, your child gets a National Insurance number automatically when they reach the age of 16. It also counts towards you or your partner’s State Pension. So, if one of you is a lower earner, it means you don’t have any gaps in your record.
If you’re a lower earner, you could also benefit from a variety of tax credits. Again, it’s not all that straightforward anymore. But depending when your child was born which (either before or after the 6th of April 2017), you could claim the basic amount of Child Tax Credit known as the ‘family element’. This goes up to £545 a year. Plus, you can claim what’s known as the ‘child element’, offering up to £3,235 a year. All that adds up to £3,780 a year, so it’s well worth registering if you can.
For children born on, or after 6 April 2017, you’ll usually only get the ‘child element’ for them if they’re the second of your children you’re claiming for. While you might get the ‘child element’ for more children if exceptions apply, you can only claim the ‘family element’ if at least one of your children was born before 6 April 2017. If all your children were born before 6 April 2017, you get the ‘child element’ for each of them. You’ll also get the basic amount known as the ‘family element’. Sound complicated? It can be. Though if you need any advice, we’re always on hand to help.
2 Source: www.gov.uk, as at September 2023
- Curb your enthusiasm
It’s really tempting to buy everything new for a baby, especially when it’s your first. After all, it can be hard to keep a lid on your spending when you see all those cute baby clothes and state-of-the-art buggies. Yet while you’ll need to equip yourself with the essentials, do you really need that nappy disposal system? Before you panic about all the baby gadgets you’ll need, it’s worth checking you can afford to splurge. Plus, maybe there are some things you can get for free.
There’s no doubt you’ll need a huge amount of things in the first weeks and months, including more clothes than you imagine possible. But as babies outgrow their little outfits so quickly, perhaps you have friends or family who could donate clothing their children have grown out of. It’s not a great way to save money. you’ll be doing your bit for the planet too. You may also be able to borrow or even keep other helpful items such as pushchairs, baby monitors and night lights. Yet if you don’t have any hand-me-downs to count on, why not think about buying second-hand? The savings soon stack up and the money is sure to come in handy later on.
- Check your childcare options
Being a new parent means all kinds of choices. And childcare’s not one of the easiest. If one of you stays at home, for instance, your combined earnings aren’t going to be the same as before. Yet if both of you work, you’ll have to pay for childcare. It can be expensive. And not everyone has family or friends close-by to help out with babysitting. That’s why it’s common sense to plan ahead. For example, you can ask for recommendations of local nurseries and childminders. That way you can get an idea of what’s available and how much you’ll have to pay. Bear in mind there may be waiting lists, too. Meaning it’s best to do your research now, so you’re all set when your baby arrives.
Even if one of you is aiming to stay at home beyond the first year, childcare is still worth looking into. Looking after a baby or toddler all day, every day, is a wonderful opportunity to bond with them. But it can be overwhelming too. So if you don’t have family or friends around to call on, even a half day of childcare once a week can give you a much-needed break.
- Talk openly about money
Okay, this should go without saying. But talking openly about money with your partner means you’re both singing from the same hymn sheet. In other words, don’t keep money secrets and there won’t be any nasty surprises along the line.
It’s also worth talking to others, such as family, friends, or whoever’s there to support you. If you’re a single parent, then Gingerbread offers all kinds of free support and resources to help.
- Have a savings plan in place
Now you’ve made it this far down the list, you could be forgiven for thinking there’ll be no money left for savings. But with some careful early planning, hopefully this won’t be the case and you can make room for some longer-term savings. Of course, if you’re shifting from a double to single income household, there’s no better time to start saving than while you have two salaries coming in.
Putting some money aside in an ISA means you’ll enjoy added tax benefits to help your money go further. A high-interest account can be a good home for money in the shorter term, such as holiday savings or a rainy-day fund. But for future goals such as school or university fees, it may be worth looking at a Stocks & Shares ISA. As these investments both fall and rise in value, there are more risks involved, meaning you may get less than you invest. Yet there’s also more potential for growth, so it’s a good idea to learn about the best options for you.
- Enjoy every moment
As long as you’ve given plenty of thought to how you’ll cope and adapt financially, you can get on with welcoming your new child into the world. And by planning ahead now, you’ll have far fewer money worries later, leaving you free to enjoy every second of your exciting new experience. At Allisons, we love nothing more than helping parents make the most of every moment. So if you’re looking to have children and want to plan your finances accordingly, why not see if we can help?