Financial planning for new parents: Don’t forget about your future too

For new parents, putting your child first will always feel like the right thing to do. After all, it’s your responsibility to make sure they’re cared for and given the very best start in life.

But while it may be tempting to spend every spare penny on your child instead of yourself, it’s important to take a more rounded view of your financial position – and attend to the basics that will put your family on a firm financial footing. Just as a safety demonstration on an aeroplane will tell you to put your own oxygen mask on first before your child’s, prioritising your finances and long-term financial plan will benefit you all in the longer term.

Most people will take the arrival of a new baby as the right time to prepare their home to make sure it’s baby-friendly. But it’s just as important to put your financial house in order as well. A good place to start is to draw up a budget that lists all of your income and outgoings.

The chances are there won’t be much left over after you’ve factored in all of the essentials. But you might be able to identify some non-essentials that can be removed – even for a short period – as you come to terms with life as a new parent. For example, you might need to place overseas holidays and streaming subscriptions on the backburner for the time being.

At the same time, you may need to prepare for a drop in your income. If you and your partner both work, you might find your family budget is considerably more stretched as maternity and paternity leave reduces the money you have coming in. It’s important to calculate, in advance, what you and your partner are entitled to while you are not working, and build that into your budgeting.

For most people, having a child will put a strain on their finances, and it’s important to be realistic about what you can and cannot afford. Having children often means trying to juggle priorities, while recognising you may not be able to do everything at once.
Education can be a complex and emotive topic for new parents, and one of those areas where you may decide you’re willing to make financial sacrifices in order to give your children the best start in life. However, it can come at a significant cost. Research from the Independent Schools Council (ISC) reported that the average fee for a child to attend a private day school is currently around £15,655 a year, or roughly £5,200 for each school term.

Unless you can afford those kinds of fees without putting yourself – and your family – into long-term debt, stretching your finances to achieve this goal might be a bad idea. From a financial planning perspective, it’s far better to take sensible steps with realistic financial goals that will benefit your family as a whole.

Once you’ve grown accustomed to sticking to a new-look family budget, you should hopefully be able to start saving, or increasing any existing savings. As a parent, you should think about building an emergency ‘rainy-day’ fund that can cover any unexpected life events, such as illness or redundancy.

Most financial planners suggest an emergency fund should be able to cover household bills and expenses for six months. Ideally, this money should be easy to access, rather than being tied up in fixed term savings accounts (which often penalise account holders for early withdrawal) or investments, which are intended to be held for a longer period.

After building up a healthy rainy-day fund, if you have any other money left over, it’s a good idea to make sure that money works harder for you by investing it. While the rates of interest paid on standard savings accounts are low, investing gives your money the opportunity to grow over time, helping you to achieve your longer-term goals.

A Stocks & Shares Individual Savings Account (ISA), gives you the opportunity to invest up to £20,000 each tax year, without paying tax on the growth of their investment. However, it’s worth remembering that the value of investments is not guaranteed, and there’s a risk you may not get back the full amount invested.

It’s also important for new parents to consider their retirement, as far away as that may seem. If your finances are being pinched, it can be tempting to reduce the amount you pay into a pension, and use that money on those day-to-day costs instead.

But because of the way pension savings grow over time, it’s much cheaper (in the long term) to invest as much as you can in the early years, rather than try and make up for it later. If you sacrifice your retirement planning now, you’ll only be passing on the burden of paying for your retirement to your children, as they may have to help you pay for retirement care later on.

You deserve to spend your retirement years in comfort, so it’s vital you keep saving into your retirement pot, even if the going gets tough.

Wanting the very best for your children is an understandable emotion, especially for new parents. But at the same time, it’s important to make sure your own financial plan remains on track.

At Amber River, we understand the importance of putting long-time financial plans in place that balance all of your family needs, without sacrificing your own. We call this approach Life Landscaping®, and it’s designed to help you at each stage of your financial journey.