Financial planning for a baby
Having a baby is a joyous occasion, but it can also be a financial shock to the system. In the UK, raising a child to the age of 18 costs an average of over £166,000 for a couple and over £220,000 for a lone parent.
Here are some tips for preparing yourself financially for having a baby:
- budget and explore available government benefits;
- consider your employer’s parental leave; and
- research childcare costs in your area.
Budgeting costs
Once you know how much money you’re likely to have coming in and going out, you can create a budget that takes into account the additional costs of having a baby. This will help you stay on track and avoid overspending.
The government offers several benefits to new parents, such as:
Make sure you explore these options and take advantage of any that you’re eligible for.
Parental leave
If you’re employed, it’s important to find out what parental leave options are available to you. You may be entitled to Statutory Maternity Pay or Statutory Paternity Pay, which can help cover some of the lost income during your time off.
Additionally, some employers offer enhanced parental leave, which is often paid equivalent to your salary. This can make a significant difference in your financial situation, so it’s essential to research your options and speak to your employer.
Childcare costs
Childcare costs are one of the most significant expenses associated with having a baby. It’s essential to research what options are available in your area and how much they cost. Consider factors such as the distance, opening hours, and learning style.
You may also want to explore alternatives such as hiring a nanny or having a family member provide childcare. No matter what childcare option you choose, it’s important to visit the provider in person and observe their interaction with children.
Our Carer’s Pension Gap report uncovered how care moments, such as looking after children, can impact pension savings. One finding was that for every missed year of paid work, the loss to a pension pot is an estimated £5,000, on average.
Parental leave and pensions
If your workplace scheme is a defined contribution pension, you and your employer will still be contributing to your pension while you’re on Parental Leave and Pay. However, if you opt out of your workplace pension your employer may stop making contributions as well.
Your contributions during parental leave will be based on your parental leave pay, rather than your full salary. Your employer will continue contributing to your pension based on your pay before you took parental leave.
Emotional readiness for a baby
Emotional readiness for having a baby is just as important as physical readiness. Having a baby is a major life change that can bring about a wide range of emotions, from joy and excitement to fear and anxiety.
Here are some tips for preparing yourself emotionally for having a baby:
- educate yourself on developmental milestones;
- figure out your parenting philosophy; and
- build a support system for you and your baby.
Educate yourself
Having a baby is like starting a new job, but without any training or onboarding. One day, you’re just a regular person, and the next day, you’re responsible for the care and wellbeing of a tiny human being.
Educating yourself before having a baby is one of the best things you can do to prepare for this new role. There are plenty of resources available to help you learn the basics, and you can always pick up more knowledge as you go.
Parenting philosophy
Before you have a baby, it’s important to think about your parenting philosophy. If you have a partner, you may want to discuss how each of you visualises parenting responsibilities. What kind of parent do you want to be? What values are important to you? This will help you make decisions about how to raise your child.
There’s no right or wrong answer to any of these questions. The most important thing is to be a loving and supportive parent. With a little planning, you can develop a parenting philosophy that works for you and your child.
Support systems
The old adage “it takes a village to raise a child” is more than just a feel-good platitude. It’s a realistic acknowledgement that parenting is hard work, and it’s much easier to do with a strong support network. This can include family, friends, and neighbours who can provide support in a variety of ways: from practical help (like babysitting and cooking meals) to emotional support (like offering advice and listening to your concerns).
Life insurance and wills
If your family’s expanding, you may wish to review your life insurance policy. This will ensure your family’s protected in case of an unexpected event. If you haven’t already, make sure you create and maintain a will.
With your pension savings, you can nominate beneficiaries to receive the remaining balance when you pass away. It’s also important to keep these details up-to-date.
The transition to parenthood will be a rollercoaster, but support is available. Preparing your finances as much as you can in advance goes a long way for new parents.
Wondering how raising children impacts your personal finances? Listen to episode 19 of The Pension Confident Podcast and hear from our guests as they discuss wills, life insurance, pension beneficiaries and more. You can also watch the episode on YouTube or read the full transcript.
If you’re interested in learning more about looking after family members, what to do when expecting a baby, or family problems like illness, divorce or bereavement, head to our Family and Care section.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
