Having a baby is a beautiful, life-changing event. It’s also a huge financial commitment.
So, if you’re currently expecting or are planning to have a baby in the near future, then it could pay off to assess your finances before the arrival of your little one.
After all, research from the Child Poverty Action Group (which was carried out in 2022) indicates that a child could cost a couple £157,562 over 18 years.
With that in mind, here are a few tips to help you prepare.
Make sure your finances are in shape
If you’re about to have a baby, you might want to ensure that your finances are in order as there are a lot of things to pay for – both before they arrive, and when they are here. Things like furniture, feeding equipment, nappies, toys, and clothes, for example.
And not only will you have these expenses, but your household could see a change in the amount of cash you have spare due to maternity and paternity pay. But more on that later.
Where do I start with getting my finances in order?
Well, as a first step, it may be worth assessing your savings to check how much you have tucked away already. If you don't think you have enough (it's typically recommended that emergency savings cover 3-6 months' worth of outgoings), then think about whether you could make any cuts to your spending to increase the amount in your emergency fund and other savings pots – including any ISAs.
ISAs (or 'Individual Savings Accounts') are saving and investment accounts that allow you to save and invest up to a certain amount each year without paying tax as your money grows. For the 2023/24 tax year, the maximum you can put in is £20,000.
And don’t forget your will too. Now that you’re thinking about having a little one of your own, it could be a good idea to write one up or adjust the one you’ve already prepared.
Know what you’re entitled to
If you’re expecting, you may be able to receive some financial help from the government. So, here’s an idea of what you could be entitled to.
If you’re planning on taking some time off work to look after your baby after you give birth, then you could be eligible for statutory maternity leave and pay. If it's your partner that's expecting, you might also be able to claim paid paternity leave.
Make sure you check the different rules for maternity or paternity leave from HMRC:
If you’re having your first child and already receive certain benefits, you may be able to claim the Sure Start Maternity Grant. This grant gives a one-off payment of £500 to help you with the costs of having a newborn, but it's not available to those living in Scotland.
Here’s more information about the Sure Start Maternity Grant.
What about Child Benefit?
If your child is under 16 (or under 20 if they're still in approved education or training) and you’re their legal guardian, you'll be able to claim Child Benefit.
If it’s your first child, then you may be able to receive £24 a week (as of the 2023/24 tax year). For any additional children, you’ll get £15.90 per child, per week. Thus is usually paid every 4 weeks.
If you or your partner has an 'adjusted net income' of over £50,000, however, you may have to pay the High Income Child Benefit Charge. This includes your salary before tax and interest from savings and dividends. Find out more about Child Benefit here.
Plan and budget
Having a baby is a wonderful thing. But it doesn’t come cheap, that’s for sure! You can check out the average cost of having a child in the UK here.
But don’t worry, there are ways you could keep the costs down by planning ahead. For example, you could research the prices of all the things you need to get before the baby arrives and whether you can reduce the costs of these.
Where could I make savings?
Let’s start with clothes. Since your child will grow fast, try to resist impulse buying and only purchase what’s essential. And don’t forget to ask family and friends for help – they might have items they can pass down to you from when they had kids. Plus, most people will be more than happy to buy clothes as a gift for your new addition.
Now, nappies! You'll get through a lot, and if you want to save money on these, then it could be worth looking at offers when you need to stock up or invest in cloth nappies that can be washed and reused. These are kinder on the environment too as they reduce waste.
If you’re looking for bedroom furniture and travel equipment, you don’t need to buy the newest items you find in store. If you want to save money, why not look for second-hand items on eBay or Gumtree?
And if you need to use childcare, it’ll likely be your biggest expense. As of 2022, it cost an average of £138.70 a week for part-time care (25 hours), and £269.86 for full-time (50 hours).1
So, it’s important to plan as soon as you can. For instance, you could start putting some money aside whilst you’re expecting, and maybe even save the money you get from Child Benefit. It’s also helpful to check whether you’re eligible for financial support from the government.
Once you’ve got all the costs listed, make sure you create a budget before the baby arrives. Obviously, once your child is here, you may need to adjust your budget depending on their needs. But remember that planning is key and anticipating your child’s needs could help you prepare their financial lives in the best way possible.
Keep an eye on your pensions
Since you’re likely to take some time off from work when you have your baby, you might want to make sure that you won’t be missing out on any National Insurance contributions, or it could have a serious impact on your State Pension (this is money you'll get from the Government to live on in retirement).
If you claim Child Benefit, they'll be aware of your situation and you should keep receiving National Insurance credits – this is important because these credits could determine how much State Pension you’ll receive and when you’ll receive it. But you will only get these credits under certain conditions, so make sure you check your eligibility before claiming for these.
As things currently stand, you’ll need to have at least 10-years’ worth of contributions to get any State Pension. And if you want to get the full amount (which is £203.85 per week for the 2023/24 tax year), you’ll need 35 years’ worth of contributions.2
What happens to my workplace pension when I have a baby?
If you’ve been automatically enrolled in a workplace pension scheme, your employer must continue to pay into your pension. The MoneyHelper website has more information on how much you'll contribute based on the type of pension you're enrolled in and how long you're off work.
But what happens once your maternity or paternity leave stops? Well, if you’re planning on going back to work full-time straight after your time off, then you can pay extra contributions to make up for any missed ones due to unpaid leave.
If you decide to return to work on reduced hours and earn a lower salary, then your pension pot could be impacted if the amount you and your employer pay in will decrease. If you choose to stay at home with your child or become self-employed, you will need to make your own pension arrangements and you won’t be able to benefit from employer contributions.
Consider investing in your child’s future
Thinking about the near future is great, but it’s also important to consider the long-term. As parents, we all want what’s best for our children. and giving them the brightest possible future isn’t cheap and requires some planning in advance.
Most parents will open a savings account for their little one and make monthly contributions to build up a nest egg for them to use in future. According to our own research into how parents are planning to save for their children, 40% said that they feel they have a responsibility to save for their children, and 22% said they'd feel guilty if they didn't.
Saving may be a great way to prepare your child’s future, but if you’re expecting or are planning to try for a baby soon, then you’ve got extra time on your side. So, it could be worth considering alternative options, like investing for them.
But is it not risky, you ask?
Investing does come with risk as returns aren’t guaranteed and you could end up with less than you initially put in. However, because gains aren't tied to fixed interest rates, there could be the potential for your child's nest egg to grow further over the years.
In fact, the longer you invest for, the better chance you have of seeing positive growth. And this is for two reasons:
- Financial markets are impacted by many things (like global political events and economic trends), and their performance (and the value of your investments) can fluctuate. This is completely normal, and the longer you stay invested for, the more time you could have to ride our market dips.
- Over time your potential profits (or dividends) can generate further gains themselves – this is due to something called ‘compounding’. Think of it like a snowball getting bigger as it rolls down a hill and picks up more snow.
So, how do you invest? Is it complicated to do?
If you want to invest in your child’s future, you could open a Junior Stocks and Shares ISA as soon as they’re born. This is a type of investment account that comes with many benefits:
- It lets you invest in a tax-friendly way, meaning your child won’t need to pay tax on any profits they make and they’ll be able to keep more of their money.
- You can pay in up to £9,000 each tax year (though this is subject to change in future).
- Everything you put in a Junior ISA is locked away until your child turns 18 and nobody can dip into their savings pot – the money belongs to them, and only them, and once they reach 18, they’ll gain full control over their account and can decide what to do with their savings.
Opening a Junior Stocks and Shares ISA can feel like a daunting task, but it doesn’t have to be. With robo-investors, like Wealthify, the hard work is done for you.
We'll pick your child’s investments and manage their Plan on an ongoing basis. All you need to do is choose the risk level you are comfortable with and the amount of money you’d like to invest. And it doesn’t have to be big lump sums either. It could be possible to build a decent nest egg for your child by investing little and often.
If you open a Wealthify Junior ISA on the day your child is born, paid in an initial deposit of £50, then invested £50 a month thereafter, they could celebrate their 18th birthday with £15,446.3 This is a nice amount they could use to help them buy their very first car, pay for some of their university expenses, or even put towards a deposit for their first home!
The tax treatment depends on your individual circumstances and may be subject to change in future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.
3: This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £11,823. If markets perform better, your return could be £20,410. Values correct as of 05/07/23.