For those who are thinking about starting a family or increasing their family size, one of the biggest worries can be money. It’s hard to find the perfect time and people often say that financial worries have held them back. For those starting a family for the first time this can be especially daunting as it’s something you’re completely inexperienced with. Before I started my family I had no clue about benefits, employment rights or even the cost of a pack of nappies. I remember one classic conversation with my husband who was asking me why I’d bought 100 nappies at 8 months pregnant. Financial planning for a baby was something we needed a crash course on!
“How often do you think you have to change a nappy?” I asked him, lying in bed, cradling my massive bump. “Once or twice a day?” He suggested, after giving it some thought. He thought I was pranking him when I told him the actual figure and I had to google it for him and give him a chart of how many nappies a baby can go through in the first year. But how would you really know that if you have no experience with children? There’s so much to learn! We had no clue what we were doing and were desperately in need of a budget!
Let’s take out some of that financial worry for you. Open a notepad or word document and follow through these first steps, making notes. An excel document or google spreadsheet is also an excellent option for those trying to calculate their budget. You don’t need any software at all, just head over to Google Docs and click New Spreadsheet. There are also editable free templates for Monthly or Annual budgets if you’d prefer.
Note that point 6 applies to my British readers only, but the rest is universal!
The 10 Essential Steps to Financial Planning for a Baby
1. Maternity Leave
It’s essential to know what your rights are when it comes to maternity leave. There’s an excellent government resource on your maternity rights, but your entitlement will depend whether you’re part time, full time or self employed. You should also check if your employer has any additional maternity allowances and check your holiday entitlement and consider saving up holiday days to take in addition to your maternity leave. You can then calculate what your maternity pay will consist of and plan for how long you will take off work.
Note that you’re also entitled to paid time off for antenatal care – medical and midwife appointments, including travel time.
2. Paternity Leave
I’ve written about how there is zero paternity allowance for self-employed dads, as well as no shared parental leave. This is something that’s important to account for. If partner is employed you might be entitled to 1 or 2 weeks paternity leave as well as paternity pay and shared parental leave. You should check with your employer how you can use your holiday entitlement to extend that as well. It’s really important to try to take off as much time as you can spare in my opinion, as not only will mum need the extra support, but dad or partner needs that time to bond with the baby as well.
Fathers or partners are also entitled to take time off for 6 hours of antenatal appointments, but this will be unpaid.
By having an advance idea of your maternity and paternity employment entitlements and assessing your full household income, you can then calculate your budget going forward for the next year. So the first step of your spreadsheet is to calculate all your income, all your regular outgoings, and see what you’re left over with.
3. Life insurance
No one wants to think about their own mortality – especially not when you’re having a baby, but it’s important to have an honest discussion with your partner about what would happen if one, or both of you were killed. Every UK resident aged with a child under 4 years old is entitled to 12 months parent free life cover. This is offered by a wide range of insurance companies and their terms may different slightly. The value is usually around £15,000.
Taking out the free cover is a no-brainer, but when I was evaluating with my husband we decided that £15,000 wouldn’t be enough for us to live – especially as I have medical conditions that would make it very difficult for me to make a living alone and look after my son if anything happened to my husband. We got quotes from all the companies (Make sure you use a cashback site such as Quidco or Kidstart to get the best value!) and decided on a £150,000 policy at an affordable price in our budget.
Some people may prefer to put a larger sum into a savings account every month and consider that a “life insurance” and that’s a good option too. It’s up to you what gives you peace of mind and fits your current budget, health and financial situation – but make sure you have a think about it, and claim the free insurance you’re entitled to!
4. Leaving a will
In addition to thinking about life insurance, you need to leave a will. Think about it, if something awful happens and both parents of your child are killed, where will he live? Who gets custody? What will his life be like? You need to have a chat to your relatives and ask if they’d be willing to shoulder the burden of parenthood in a worst case situation and make sure that any complicated assets are accounted for. This was a tough conversation for us to have because we didn’t really want to think about this scenario, but we knew deep down the responsible thing was to get this sorted and account for any eventuality. It’s given me peace of mind that our son will be taken care of should the unthinkable happen. Now we’ve sorted it, we don’t have to think about it again.
You can get inexpensive will kits online if your needs are simple, or contact a local solicitor if you want to write something more complex or have larger assets to think of.
It’s important to have a think about what’s going to happen with childcare. Childcare can vary from job to job and also from location to location. The rules for government childcare can be different not only based on England, Scotland, Wales or Northern Ireland, but can even be different from county to county. For example some of Wales currently gets 30 hours of free childcare, but my city hasn’t rolled this out yet. It’s really important to research first of all what’s available and think about what you’re comfortable with, from there you can look into local childcare that you’re happy with. Some people will choose to stay at home with children – could be mum, could be dad – and that’s something else that might affect the budget.
6. Know your benefit rights (Child Benefit & Family Tax Credits, Free Prescriptions and Dental Care, Sure Start Grant) in the UK
If you are pregnant or have given birth within the last 12 months you are entitled to free NHS dental care and prescriptions (for those who currently pay for them). Those earning working tax credit can claim a childcare element if eligible, which can cover up to 70% of childcare costs. Depending on your situation, if you’re not working or low income you might also be eligible to claim Employment and Support Allowance (ESA), Income Support, the Sure Start Maternity Grant and Healthy Start Food Vouchers, whilst pregnant or after giving birth.
In addition you’ll be able to claim Child Benefit after the birth and will receive the form from the hospital or midwife at birth. This is given to everyone and is currently £20.70 for your first child and £13.70 each for every additional child. This doesn’t require you to be low income or on any benefits!
Your midwife will be able to offer help and advice, as well as the Citizens Advice Bureau.
If you are not in the UK, whilst I can’t offer any specific advice, there may be social programs available to you that are country specific. Your primary care physician such as your midwife or doctor should be able to refer you to the correct department for your area.
7. Calculate Baby Costs
No one is kidding when they say babies are expensive. But you can have a baby on a budget with some savvy financial planning. Part of that is knowing what things will cost and not exceeding what you can afford. Babies need very basic essentials such as food, clothes to wear and somewhere safe to sleep. A lot of the extras that are sold for babies can be purchased second hand – such as buying a cot or stroller. Because children grow out of things very quickly, things marketed for babies are often only lightly used so scouring eBay, Gumtree or Facebook before the birth could snap up a really good bargain. If you ask friends or family if they have any leftover baby items you might be surprised what people have saved in their lofts who are quite happy to pass them on to be used again.
Create a spreadsheet that lists all the things you need to buy before the baby is born, as well as monthly costs. You’ll know how much income you need and how many hours you can afford to work by doing this, or whether you need to tighten the belt in other areas.
8. Create a Family Budget Moving Forward
The first couple of years can be tough, especially if you are going from two working adults down to one working adult, or adding childcare costs into the mix. Making a complete budget can be a real eye opener and help identify areas to cut back on, such as buying coffee out or eating in a restaurant. A good family budget accounts for all monthly outgoings and income and then calculates how much money you have left over, allowing you to easily move figures around and see where you can save some – or where you can afford to spend a bit more on a family outing.
9. Consider your “Big Purchases” for the next 5 years.
Big purchases such as a house (or repairs / improvements), car or extravagant holiday can really drain the bank account. It’s worth assessing everything and making sure that you’re financially prepared for the next 5 years. You can also make sure you’ve set aside some money that will cover electrical appliances or car repair costs and this means you won’t get any nasty surprises in the form of a big bill – or if you do, you’ve got a fund there ready to take care of it.
10. Set up a child’s bank account / savings account.
It’s never too early to start saving and in fact, setting up a savings account and paying into it regularly from birth can be a great way of maximizing your money. Not only can it earn compound interest but paying into certain savings accounts such as an ISA can provide tax dividends. It’s worth booking an appointment with your bank fairly early on and looking at your options. Having a bank account for a child also means that if he receives any cash gifts from relatives for birthdays, Christmas or special occasions, you can deposit that into his bank. You can create a savings account in your name at any time and transfer your savings to him when you’re ready, so this is a plan you can start before your baby is born.
I hope that these ten steps for financial planning for a baby have helped you think about the future of your family and how you can help plan and budget to be financially secure. If you have any tips on how to save money or budget for a baby, please leave them in the comments!