Financial Planning when having a baby

When you are having a baby, there are so many things to think about: what travel system to buy, which car seat to choose, whether to use disposable or reusable nappies, what colour to paint the nursery. But don’t forget to look at your financial planning when having a baby.

As a new mum to be myself, here I go through each financial aspect I think you should investigate when you are expecting.

Maternity Pay

 The first thing to find out is how much you will receive while on maternity leave.

In terms of Statutory Maternity pay, you are entitled to up to a year of maternity leave from your employer, but this doesn’t mean you will get paid for the full time. You will be eligible for 39 weeks’ pay as follows:

First 6 weeks               90% of your average weekly earnings before tax

6-39 weeks                  £151.20 or 90% of your weekly earnings (whichever is less)

39-52 weeks                Unpaid

In order to qualify, you need to earn at least £120 per week and have been with your employer for at least 26 weeks.

Your partner will also be entitled to Paternity pay.

Your employer may pay more in terms of maternity pay. To find out if this is the case, you will need to have a conversation with your employer or HR department. This may well dictate how long you can afford to take off work when your little one arrives.

If you are self-employed (sole trader), you cannot get Statutory Maternity Pay. You may however, be entitled to Maternity Allowance. You could get either:

  • £151.20 a week or 90% of your average weekly earnings (whichever is less) for 39 weeks
  • £27 a week for 39 weeks
  • £27 a week for 14 weeks

To find out more, click here.

Budget

Next, budget. Not only for everyday spending but also for that all-important baby paraphernalia.

In terms of everyday budget, once you know what your maternity pay will be calculate all you monthly income considering any reduction in maternity pay after a period of time and any benefits you may be entitled to (see below).

Then, look at your current outgoings – include everything from insurance to pet food. Once you know what your current spending is, you will then need to estimate additional baby expenses such as nappies, milk formula, baby clothes and so on. You will then have an idea of how much income you need to sustain your new lifestyle.

You may need to start saving some of your current income to support you whilst on maternity leave.

It would also be a good idea to think beyond maternity leave. You may need to consider nursery/child-minder costs for when you return to work.

For the big one-off expenses, such as a new travel system investigate what you want and the cost of these. Tot these up and see if they are affordable. Sometimes excited grad-parent to be will want to help.

If new items are not affordable, look at second-hand sources. We bought a lovely travel system (excluding Car Seat) from Ebay – good as new. £900 new, we paid £100. Do note, some things are advised not to be bought second hand e.g. Car seats and mattresses.

Don’t get into debt just to buy the newest and best – all baby needs are love and to feel safe.

Child support

 On having a baby, everyone is entitled to claim Child Benefit.

You can claim child benefit if you have a child who is under 16 or 20 in Full time education. It is £21.05 per week for the first child and £13.95 for an additional child.

The benefit may be taxed if you or your partner earn over £50,000 per annum and if either of your earnings are over £60,000 you will have to pay back 100% of your entitlement.

If you are not working or you do not earn enough to make National Insurance Contributions, and your child is under 12, Child Benefit gives you National Insurance Credits. These could towards the State Pension, so you do not have gaps in your record.

If you would like to claim Child Benefit – follow this link.

Don’t forget, you also get free NHS dental care and free prescriptions while you are pregnant and for a year afterwards.

To find out more about Financial Help if you have children, click here.

Protection

Reviewing your protection

Even if you have life cover and critical illness cover in place, it is worth reviewing this when you are expecting a child. You may wish to consider the following:

  • Is the current level of cover enough if something should happen to you or your partner? Will the amount of cover in place cover lost income/childcare/enough peace of mind that you can spend time with your children without worrying about finances should the worst happen?
  • Does your critical illness cover include Children’s Critical Illness cover? Many modern policies will now include cover for children as an optional extra providing c£25,000 worth of cover should a child be diagnosed with a certain Critical Illness.

If you have no protection

If you do not have any protection in place, it is worth thinking about what you would do if you/you partner:

  • Were unable to work for a prolonged period due to illness, accident or injury. How would you pay the bills? Such as the mortgage, electricity, food and so on. Even if you have savings, how long realistically would they last?
  • Died – would the surviving partner be able to maintain their current standard of living and afford to pay the mortgage and bills? Keep the family roof over your head. If the worst did happen, the last thing you would want is having to move to a new house as you cannot afford to maintain your previous lifestyle. Even if you could afford the bills, would you like to be able to reduce working hours to spend more time with the children considering their loss?
  • Were diagnosed with a critical illness – would you want to be able to focus fully on recovering and spending time with family rather than worrying about finances?

To find out more about what is Life Cover, click here.

More about Critical Illness Cover, click here.

To find out more about Income Protection, click here.

If you are unsure of where to start or how much cover you might need, it is worth speaking with a financial adviser who will be able to assist.

Planning for your Child’s future

 If you want your baby to go to a fee-paying school or to university or you want to buy them a car at age 17, you would be well placed to start planning and saving for this as soon as possible. There are many savings and investment plans which could be suitable to use for these goals. It is worth starting with having a rough idea of how much you would need for each objective as this can give you an idea of how much you need to start saving today. You may also want to consider what interest you may get on your savings, or what return on investment may you get over the number of years of the investment. You should take into account how much investment risk you wish to take with the money.

This is the type of thing a financial adviser can help with, so do get in touch if I can be of assistance.

Opening a JISA

 It may be worth considering opening a Junior ISA for your baby. This can be held in either Cash or Stocks and Shares. Unfortunately, the Government no longer make payments into these however, you can save up to £9,000 each year tax free. It is worth remembering that this will be in the baby’s name so they will be entitled to access the money from the age of 18 so you may have little control over what they spend the money on.

If you would like to find out more information about JISAs, click here.

Most financial Advisers would be happy to advise on Stocks and Shares JISAs for your child alongside your own financial planning.

Pension

Within the UK, there is a huge gap between what men save for their retirement compared to women. Among other things, one of the reasons for this is career breaks taken by women where they do not pay into pension or other retirement saving vehicles.

If you can afford to, it is worth maintaining pension contributions throughout your maternity leave.

 If you plan to be a homemaker on the birth of your baby, it is a good idea to claim Child Benefit so any gaps in your State Pension credits are plugged. It is also worth remembering that even if you aren’t earning an income, you can still pay £2,800 net, £3,600 gross (with £720 tax relief) into a pension.

It is worth reviewing your pension to ensure that you understand the implications of reducing or stopping pension contributions on when you may be able to retire and the income you may generate in retirement.

To find out more about pensions, click here.

Writing your will

 It is really important that you review and update or write your will if you have a family. This will enable you to stipulate what you would like to happen should you die in terms of your finances and also, should something happen to both of you, guardianship for your baby.

Financial Planning when having a baby – checklist 

These are the key things to make sure you review when looking at your financial planning when having a baby:

  • Check maternity pay entitlement
  • Do a budget planner
  • Claim Child Benefit
  • Understand other benefit entitlement
  • Review or set up protection
  • Plan for your baby’s future
  • Open a JISA
  • Review your pension and retirement planning
  • Review or write your Will

Financial Planning when having a baby

There are so many things to consider when you are having a baby. But don’t forget to add Financial Planning when having a baby to your list.

If you would like assistance with this, I can help with your budget planning, protection, planning for your baby’s future, opening a JISA and reviewing your pensions and retirement planning so do please get in touch.

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