Starting a family is, for many of us, the ultimate goal. Having your first child is truly life-altering, and nothing – from your daily routine to your relationships – will ever be the same. It is the biggest blessing, but one that can turn your finances upside down if you don't adequately plan ahead.
In this guide, we are sharing our top five tips for financial planning as soon-to-be new parents, so that you can be financially prepared once the baby arrives.
Calculate Your New Monthly Costs
It helps to go into parenthood with an expectation of your new monthly spending. Sit down with your partner and calculate how much you will roughly spend on things like nappies, formula, baby clothes, childcare and any unexpected costs.
If you have someone in your life who has recently become a parent, ask them to help you with this planning. They should have the most accurate knowledge when it comes to how much it costs to raise a child in today’s day and age. Once you have this information, track your spending for a few months to prepare for your baby’s arrival.
Create a Budget and Calculate Your Statutory Maternity Pay
Building a budget is the easiest way to make sure you can afford the monthly expenses that come hand-in-hand with a new baby. It also reassures you that you can provide everything your baby needs even while you are on reduced income during maternity or paternity leave.
GOV.UK has a good online maternity pay calculator that you can use if you want to see what your income will look like during this time. You can reduce a lot of stress down the line by simply planning early and being aware of how much money you will have during maternity leave.
Build a Baby Emergency Fund
Having access to an emergency savings fund is essential regardless of your family situation, but arguably matters even more with a baby.
You never know when you might need extra money to pay for something unexpected as new parents. Since your income will temporarily be lower and your expenses higher, having around three months of essential expenses saved in an easy-access savings account will provide the peace of mind you need in the run-up to parenthood.
Buy Baby Items Without Overspending
It is all too easy to get sucked into the world of cute baby clothes, toys, techy gadgets, like monitors and bottle warmers, and other things you do not actually need, but become convinced that you do.
Of course, many of these items are important, essential, even. But don't get tempted to buy them all. Focus on the things you think will provide the most value and try to buy second-hand where you can. Many people even give away baby clothes for free on sites like Facebook Marketplace, saving you from spending money on something your baby will wear for a couple of months at most. Be frugal with your spending where possible.
Plan for Your Child’s Future Savings
It is never too early to start thinking about your child’s own financial situation. An effective way to save money is with a junior ISA or savings account, which you can gradually build up over time with regular small contributions.
Compounding interest can have a phenomenal impact. For instance, if you save £50 a month from your child’s first birthday and earn an average return of 5% a year, you could build a pot of around £18,000 by the time they turn 18, even though you have only put in £10,800 yourself.
On a similar note, make sure to stay focus on your own financial goals even once your child is born. Your retirement plans still need to be covered, so continue to treat your pension contributions as mandatory, even if it means cutting back in other areas. Your future is just as important as your child’s.
