Bringing a new life into the world should be a joyous time, but money worries can make it an anxious time too. As the cost-of-living crisis continues to bite, it’s a good idea to start preparing your finances as early as you can. Here are some thoughts on the costs you’re likely to face as a new parent, as well as how you can start to plan ahead.

There’s no doubt about it, starting a family will completely change the way you think about your finances. Your bank balance will never be the same again, and your holiday plans will soon be dictated by school holidays.

The long-term costs can really mount up too. According to the Child Poverty Action group, in 2021 the cost of raising a child from birth to 18 years old was £160,692 for a couple and £193,801 for a single parent or guardian. Those figures don’t include housing costs, childcare costs or council tax. They also don’t account for the hefty increase in energy bills and food prices we’ve all experienced over the last couple of years, so it’s important to take some early steps to get your financial house in order.

Baby costs can easily hit £12,000 in the first year

Pre-baby budgeting

In the first few months, new parents will need to buy all sorts of baby-related items, such as prams, furniture, baby clothes, toys and of course, nappies. Those baby costs can easily hit £12,000 in the first year, according to some estimates. So, once you know a baby is on the way, it really is in your best interests to plan ahead and even start to put aside some savings if you can.

Coping on reduced incomes

Of course, having a baby isn’t just expensive because of increased outgoings. It’s also a time when taking time off work could mean you’ll have less money coming in. New mothers who are employed should be entitled to statutory maternity leave, which lasts for 52 weeks – but only 39 weeks of that is paid leave.

Study your employers’ maternity/paternity policies

After the first six weeks, the amount of maternity pay you’ll receive from your employer will depend on your employer’s maternity policy – and some employers are more generous than others. It’s important to talk to your HR department and to understand their maternity leave policy as early as you can, to help you plan how much leave you can afford to take.

For new dads, provided they have been with their employer for at least 26 weeks, they should qualify for two weeks of paternity leave with statutory paternity pay of either £156.66 per week or 90% of their average weekly earnings (whichever is lower). Again, different employers will have their own paternity leave policies, so make sure you know where you stand in advance.

If you are self-employed are not eligible to take maternity leave, but you can still claim Maternity Allowance

What if you run your own business?

The self-employed are not eligible to take maternity leave, but you can still claim Maternity Allowance. You can start claiming Maternity Allowance once you are at least 26 weeks’ pregnant, and you can claim payments of up to £156.66 per week for up to 39 weeks. These are not large amounts, certainly, but it’s well worth new parents claiming every benefit they are entitled to. After all, this is why we pay our taxes!

Claiming Child Benefit

You can claim Child Benefit as soon as you’ve registered the birth of your child. And although it can take up to 16 weeks to process the claim, once registered Child Benefit can be backdated up to three months, so you won’t miss out. The amount of Child Benefit you will receive is £21.80 per week (paid every four weeks) for your eldest or only child, and £14.45 for each additional child.

If you and your partner earn less than £50,000 a year each, you’ll receive the full amount of Child Benefit. However, if either of you earn between £50,000 and £60,000 a year before tax, you’ll have to repay 1% of the Child Benefit for every £100 you earn over £50,000 each year. If you or your partner earn more than £60,000 a year before tax, you will have to repay all of the Child Benefit through your income tax. This is known as the ‘High Income Child Benefit Tax Charge’.

The cost of nursery and childcare

Once you’ve overcome those first few months, you’ll probably need to start thinking about nursery costs and childcare. And this is when the costs really start adding up. According to the Family and Childcare Trust, a part-time nursery place (25 hours) for a child under the age of two costs £138.00 per week – that’s more than £7,000 per year.

However, the government does step in to help as your child gets older. All three- to four-year olds can get up to 15 hours per week of free childcare. And in 2017, the government introduced its Tax-Free Childcare scheme, which offers up to £2,000 a year (per child) towards childcare costs like nursery, childminding and other care – such as caring for a disabled child.

With this scheme, parents pay money into an online account and the government adds a top-up. You can then use the account to pay for childcare from registered childcare providers. The scheme is open to both the employed and the self-employed, but you’ll need to earn at least £152 a week and less than £100,000 a year to qualify for it.

Working out your income and outgoings and setting a monthly budget is always a good starting point

Reimagining your finances for the longer term

Because government support will only cover some of your costs, now is a good time to not only become more disciplined about your short-term finances, but also begin thinking about the longer term.

Setting a monthly budget is always a good starting point and working out your income and outgoings can help you to calculate how much you can afford to spend on baby-related items. You may even find there’s some money left that can be put towards savings, investments or your pension, which will help you achieve your longer-term financial goals.

In addition, make sure you’ve put appropriate financial protection in place that could replace your income or pay out a lump sum, if you were to die or become unable to work. As a minimum this will usually include life insurance and critical illness cover, but you may also want to consider an income protection policy and private medical cover too. A financial planner will be able to help you with all of the above, to ensure you make the right choice for your circumstances – and budget.

Check your mortgage

If you own your own home, it might also be worth looking at your current mortgage arrangement and seeing whether it makes sense to remortgage at a more competitive rate. Alternatively, if you are currently renting, you might consider it a good time to buy, to give yourselves more certainty over where you’ll be raising the family in the years ahead.

Starting on firm foundations

Whatever your current financial situation, starting a family is likely to cause new parents a lot of upheaval, introducing new responsibilities and placing strain on your finances. But now’s the time to focus on what’s most important to you.

Talking to an Amber River independent financial planner can help you to make the best start possible, by developing life plans designed to develop and mature as your family grows.

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.