Are you a new parent or a parent-to-be wondering about the financial changes you may need to put in place once your little one arrives?
Becoming a new parent is a joyous and life-changing event. Suddenly, you have a new bundle of joy to care for but it also comes with new financial responsibilities.
Don't worry; with a few clever financial moves, you can ensure your family's finances are in good shape!
In this blog post, we'll explore the changes to your finance that new parents need to make; from planning for your child's future education to ensuring your family is protected in the event of unforeseen circumstances, new parents have a lot to consider.
Becoming a parent comes with significant financial changes. Here are a few key things you need to bear in mind:
New Expenses
From nappies and formula to clothes and toys, a new baby comes with a host of new expenses.
Changes to Income
One or both of you may take time off work to care for the baby, resulting in a loss of income.
Future Planning
It's important to consider your family's long-term financial goals, such as saving for school, a house or retirement. Many parents will underestimate how much your life turns upside down in the first few weeks of having babies.
Being clear on your long-term goals will be key to making sure you're on the same page as your partner when it comes to your finances, so you can focus any spare income on responsible and agreed upon things.
Creating a Budget: Managing Your New Expenses
With a new baby comes a lot of new expenses.
It is important to make a list of your new and expected expenses and work out how much you will need to spend each month and compare this to your expected income so that you don’t overspend on luxuries without first paying for essentials.
Splitting your outgoings into definite monthly expenses and also possible unforeseen expenses can help you plan for all eventualities. With this in mind, the next couple of points will help you to complete a budget spreadsheet….
Set Up An Emergency Fund
Unexpected expenses can arise at any time, especially with a new baby. An emergency fund can help you cover unexpected costs without derailing your long-term financial plans.
If you can, try to set up a separate online savings account where you can move small amounts of money to keep for a rainy day. If you have any money left over at the end of the month, move it to this account and pretend it doesn’t exist (until you REALLY need it).
Take Advantage of Tax Breaks
In the UK, there are several government benefits available for new and expecting parents. These include:
Statutory Maternity Pay (SMP)
This is paid by employers to new mothers who have been working for at least 26 weeks before the 15th week before their due date. SMP is paid for up to 39 weeks, and the first six weeks are paid at 90% of the employee’s average weekly earnings (before tax).
Maternity Allowance (MA)
This is a benefit paid to women who don't qualify for SMP, such as self-employed women or those who have not been working for their employer long enough. The amount of MA you can receive is based on your average weekly earnings. You can work for up to 10 KIT (keep in touch) days during this time without losing your maternity allowance pay.
Statutory Paternity Pay (SPP)
This is paid to new fathers or partners who have been working for at least 26 weeks before the 15th week before the due date. SPP is paid for up to two weeks and is paid at the lower option of £151.97 per week or 90% of the employee’s average weekly earnings.
Shared Parental Leave (SPL)
This allows parents to share up to 50 weeks of leave and up to 37 weeks of pay between them. SPL must be taken in blocks of at least one week and can be taken at the same time as the other parent or separately.
Child Benefit
This is a tax-free payment made to eligible parents of children under the age of 16, or under 20 if they are still in education or training. If one parent earns over £50,000 then the amount reduces.
If one parent earns over £60,000 you are not entitled to child benefit BUT you should still apply, and tick the box to NOT receive payments. Not only will this ensure that your child receives a National Insurance number, the parent applying will also get a stamp towards their own National Insurance each year if they aren’t working.
Tax-Free Childcare
This is a government scheme that helps working parents pay for childcare. For every £8 a parent pays into the scheme, the government will pay in an extra £2, up to a maximum of £2,000 per child per year.
There are also additional benefits available for low-income families, such as Universal Credit and Working Tax Credit. You can usually use an online calculator on the Gov website to check eligibility.
Take Out Life Insurance
As a new parent, taking out life insurance should be at the top of your to-do list. It is one of the most important financial moves you can make as new parents, and it's worth doing it as soon as you can in case your baby is born early.
Life insurance provides financial protection for your family in the event of your untimely death. It can cover funeral expenses, any outstanding debts and provide a financial cushion for your loved ones.
It is particularly important if you are the primary breadwinner, as it ensures that your family will have financial support if you are no longer there to provide for them.
Create or Update Your Will
It's essential to have a will that designates a guardian for your child in the event that something happens to both parents. Make sure to update it regularly as your family grows and changes.
Add Your Baby to Health Insurance
In the current climate, if you have health insurance for yourself, then adding your new baby to your health insurance policy is another crucial step for new parents.
It ensures they can access medical care and treatment if they fall ill or have an accident at any point in your child's life. It's essential to add your baby to your policy as soon as possible, as some insurance companies have strict deadlines for adding dependents.
Be sure to understand your options and choose the plan that's best for your family's needs.
Start Saving for Your Child's Education
It may feel like a long way off, but it's never too early to start saving for your child's education. With the rising cost of university tuition fees and the gap between outcomes for lower and higher-income households widening, the future of higher education is very uncertain for those without a huge disposable income.
Starting early can help ensure that you have enough money to help pay for your child's education when the time comes, whether it's for nursery, private school (if you are choosing this option for education) or university.
In the shorter term, saving for nursery fees would also be a really useful step to take – even with Government help, nurseries have top-up fees to cover their own expenses, and it can really add up!
High nursery fees being more than my working wage was certainly the case for me as a Teacher and almost caught me off guard.
When I worked out how much I would get after paying for nursery, wrap-around care and petrol to get to work, it didn’t make financial sense for me to return to my role and this is one of the reasons why I left my job as a Reception Teacher. I recommend you assess your job in a similar matter so you don't get caught out - nursery fees are through the roof!
It has been estimated that some full-time nursery fees cost more than one parent may make while working. Although this seems daunting, and we know how scary that seems, hopefully, our tips for financial moves every parent should make will put you at ease.
