Life will never be the same again – and neither will your finances!
It is never too early to start thinking about your changing outgoings – raising a family can mean big changes to your family budget.
In 2019, Aviva found that new parents were spending £586 on average a month on children under 5 - and that was before 5 years of inflation!*. Adjusting for inflation, that's approximately £730 a month in 2024.
But even before a baby arrives, there are certain things you should do to make sure your money stays on track. Get started with your family finances below.
When it comes to Family Finances: Budgeting is key
The first thing to do is sit down and plan out your monthly budget for before your baby’s birth.
Calculating your current and projected budget for when your baby arrives also means considering your needs, wants and desires for the first few years of your baby’s life.
Create a ‘baby fund’ to purchase baby essentials and subsidise lost income. Set aside an amount equivalent to approximately 3 months' income to cover ‘rainy days’ and unexpected issues.
When your baby arrives, don’t lose out on your entitlement – claim your weekly child benefit payment. You can check the current rates here: Tax credits, Child Benefit and Guardian's Allowance — rates and allowances - GOV.UK (www.gov.uk)
Hope for the best - but prepare for the worst!
Get yourself some life insurance – as a guide, you'll want all liabilities covered (including a mortgage if you have one) as well as enough cash to support your spouse.
Many people think that their death in service policy will meet their needs. Most of the time - it won't. Mortgages can be over 4.5x two spouse's combined salaries these days - so a typical death in service policy of 4x one person's salary is likely to fail to cover your family's needs.
Even if you’re not providing a lot of income – or you’re planning to stay at home with the baby – you should still be insured as childcare would have to be provided in the event of your death.
Don't forget to make a will. Choose someone to be your child’s guardian if anything should happen to both you and your partner. Bear in mind that the responsibilities of caring for your child can be split between a few different people. Choose one set of people to actually care for your child, and another to care for their finances in the event of your death. Trust planning can also be useful in this area, too.
Plan for their future
Think long term and start saving early to leave you in a better position to support your child in the future – for university, weddings or to help them buy their first home.
Look at long term saving options and take advantage of tax-free ISA allowances each year that are available under current legislation to maximise your tax-efficiency.
Be aware: The value of any investments can go down as well as up and you may not get back the full amount invested.
Need help in planning your finances? We're experts in protection, investments, and pensions. If you don't know how to get started - get in touch with us below.
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