Having a child

We know there are more enjoyable ways to spend an evening, but sitting down together and working through your finances can help you see where you are – and, potentially, where you need to be. You’ll have to build some baby costs into your budget, but don’t forget that some expenses will be going down as well. You’re unlikely to be going out as much, for example, at least in the first few months after the birth.

If you don’t already have some rainy-day cash put aside, do whatever you can now to start building it up. Ideally, you want three months’ worth of living costs, as this gives you a buffer for emergencies – and could help you cope financially if you take maternity leave or shared parental leave for anything more than the first few weeks.

This is important because it is usually only the first six weeks of maternity pay that stay close to what you are used to earning. For this short period, you receive 90% of whatever you usually earn. After this point, statutory maternity (or shared parental) pay drops to £145.18 a week (unless 90% of your earnings are below this level). This lasts for 33 weeks and you then don’t receive anything at all for the rest of the leave. Paternity pay is also fixed at this level and lasts for up to two weeks.¹

You may be planning to go back to work before the lower pay becomes a problem, but that isn’t always possible. For some, everything is straightforward after a birth, but others find they need more time to recover than they expected. With savings, a difficult situation doesn’t have to become more stressful.

¹ Source: www.gov.uk, as at January 2019

Child Benefit used to be simple. You had a child and the Government gave you some money to help with the bills. Now, it’s not so straightforward. You can choose to receive £20.70 a week until your child is 16 (or up to 20, in some situations), as long as you are responsible for them. If you have more than one child, any additional children receive £13.70 a week each.¹

However, if you or your other half earn more than £50,000, you have to pay a tax charge that effectively means you are returning some or all of the Child Benefit you receive. The Government’s Child Benefit tax calculator can help you understand how this works.

For higher earners, this may seem like there’s no point registering for Child Benefit, but the Government suggests it’s still worth doing. It will mean your child gets their National Insurance number automatically when they are 16 and it counts towards you or your partner’s State Pension, so if one of you is a lower earner, it can ensure you don’t have any gaps in your record.

Lower earners can also benefit from several types of tax credit when they have a baby. There’s Child Tax Credit (up to £3,325 a year), childcare tax credits (up to £122.50 a week for one child or £210 a week for two or more – though you will not get 100% of your childcare costs) and Working Tax Credit. The Government has more information about all these options on its website.

¹ Source: www.gov.uk, as at January 2019

There’s always the temptation to buy everything new for a baby, especially when it’s your first. For some purchases, this makes a lot of sense. It’s often suggested that people shouldn’t use second-hand car seats or cot mattresses. Other times, it’s more of an emotional need, such as choosing their first clothes or maybe splashing out on a good-quality pram.

Beyond this, though, are many other things your child will need in their first weeks and months. Not least, more clothes than you would think possible. Most of them won’t be worn for long, as babies grow quickly. If you have friends or family with older children, there could be the chance to save some money, and help the environment, by re-using their clothes. You might also be able to keep, or borrow, other helpful items from push-chairs to baby monitors and night lights.

Alternatively, if you don’t have access to hand-me-downs, consider buying second-hand where possible. The savings can be significant – and it’s pretty much certain that you’ll find a use for the money down the line.

New parents always face a difficult choice. If one of you stays at home, your shared earnings are reduced, but if you both go to work, you may have to pay for childcare – and it tends to be expensive.

Obviously, if you have family in the area, or friends who are willing to babysit, it may be possible to avoid this cost. But for those who don’t have this option, it pays to plan ahead. Ask for recommendations of local nurseries and child minders, so you can get a sense of what’s available and how much you’ll have to pay. There may also be waiting lists, so doing the research now will mean you’re ready to go when the baby arrives.

As a side note, even if one of you intends to stay at home for much longer than the first year, it’s still worth considering childcare if you don’t have family or friends who can babysit. Looking after a baby or toddler all day, every working day, is a wonderful opportunity to bond with them, but it can also become overwhelming. Even a half day of childcare once a week can give a stay-at-home parent some recovery time.

It’s probably the last thing you want to think about when you have children, but looking after their futures means preparing for the worst as well as planning for the happy times. If you don’t have a will, this is a good time to get it sorted – and if you already have one, it will likely need updating. You can get online templates if you want to keep costs down, but many solicitors offer affordable fixed fees for this work, as long as your situation is relatively straightforward. You could also consider life assurance, as this can give you the peace of mind that your loved ones will be looked after.

You may want to appoint a guardian, so you know that someone will care for your child, and it’s a good idea to review the beneficiaries on your pension. This may be easy to do, as you normally just have to fill out an ‘Expression of Wish’ form.

After you’ve read everything else in this list, you could be forgiven for thinking there won’t be any money left. Hopefully, that’s not the case, as longer-term savings are a great thing to have for your family and your child.

If you can put something aside in an ISA, you’ll get tax benefits to help your money go further. A high-interest account can be a good home for money you may need in the shorter term, such as holiday savings or your rainy-day fund. For longer-term goals, such as school or university fees, it may be worth looking at a Stocks & Shares ISA. There are more risks involved, as investments can fall in value as well as rise, so you may get less than you invest, but there’s also more potential for growth. Find out more about investing.

Adults have a £20,000 a year ISA allowance, so you can quickly build up your tax-efficient savings, as long as you have the money to put aside. However, it is also worth considering a Junior ISA. This has the same tax benefits as an adult ISA, but friends and family members can contribute as well. The money in the account belongs to your child, so it can be a good way to introduce them to the ideas of saving and investing, which could be invaluable lessons as they get older.