Editorial Team
AUTHOR Editorial Team| CREATED 30 Sep 2015
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Planning for a baby

Whilst Princess Charlotte may give William and Kate a few sleepless nights, it’s unlikely to be as a result of worrying about their finances. 

But for the rest of us, money has to be one of the biggest considerations before starting a family.

A recent survey from LV estimated the cost of raising a child from cradle to college at over £229,000 – slightly lower than the cost of the average house in the UK. And unfortunately you can’t take out a mortgage to pay for it.

So what can we ordinary potential parents do to make parenthood an easier financial ride? The best place to start is with a complete review of your income.


Review your finances

Find out how much maternity/paternity pay you will get and understand any shortfalls you may need to fill. The LV research breaks down financial costs by years which could be a useful guide, particularly when you consider how much family income you’d have in the growing years.

Age

Cost

Cost per year

First year

£10,526

 

Years 1-4

£58,020

£14,505

Years 5-10

£47,147

£7,679

 Years 11-17

 £53,920

 £7,536

 Years 18-21

 £52,845

 £17,459


Source: LV


Start cutting back

Sit down with your latest bank statement and go through every item of expenditure, including all your Direct Debits and standing orders, and cancel those which are no longer relevant.

Do you really need that luxury coffee house latte, glossy magazine, or new designer suit? Draw up a spreadsheet to see where your money goes, and you could be surprised how much you spend every month on things that you could potentially do without.

You don’t have to be too hard on yourself, however. Simply cut out one luxury per month, and slot the savings away, then move on to the next thing. Over time this should boost your savings balance significantly. It may just be putting off some purchases and focusing on what is important to you in the short term.


Reduce your debts

Try to clear as many of your outstanding debts as possible, focusing on the ones that charge the highest rates of interest first. Look at ways you might be able to reduce the amount of interest you are paying too.

For example, if you have credit card debts, move them onto a balance transfer credit card offering a lengthy 0% introductory period so that your monthly payments go towards paying off what you owe rather than being swallowed up by interest charges. You should also try to pay the balance off during the 0% rate period.


Start saving

It’s a good idea to start saving as soon as possible to cover the extra costs and any periods of not working. Getting into the habit of saving is really important and the sooner you start the better; with compound interest, even starting small could mean you build up a substantial nest egg over time.

Set yourself a target and decide how much you can afford to save each month – you could use it to build up a cushion for when you are reliant on one income, for baby costs or perhaps starting to think longer term for your child’s education. This will give you a combination of short- and long-term goals that would influence your savings and investment options.

Don’t give money to the taxman unnecessarily either. Make use of tax-efficient savings vehicles like your annual tax-free individual savings account (ISA) allowance to help reduce your tax bills. Returns on investments held in ISAs are free of income tax (with the exception of 10% deducted on dividends) and capital gains tax.

And whilst it is important to start saving, Patrick Connolly of independent financial advisers AWD Chase de Vere advises, ‘Be wary of having both debt and cash savings if the interest rate you are paying on your debt is more than the interest you are earning on your savings. Instead, you should use your cash savings to pay off your debt, and only then focus on building up savings’.


Boost your income

There are a number of entitlements and tax credits available, particularly for help towards childcare, including:


Childcare tax credit

If you work and pay for childcare, you may be able to get extra tax credits to help with the costs. You could get up to a maximum of £122.50 a week for one child and £210 a week for two or more children.


Childcare vouchers

Many employers offer childcare vouchers as part of their benefit schemes. This is a tax efficient way to pay for childcare as part of a salary sacrifice benefits agreement. HM Revenue & Customs provides guidance on the tax implications and benefits for employer-based support, which can be found here.


Child tax credit

Child tax credit is a financial support for people bringing up children. The amount will vary according to your income. You do not have to be working to claim this tax credit.


Working tax credit

Working tax credit is for working people on a low income. The amount you receive will depend upon your income and the number of hours that you work in a week.


Child benefits

You can apply for child benefits worth £20.70 per week for your eldest qualifying child and £13.70 per week for any other children. However, if you or your partner have an individual income of more than £50,000 you may have to pay something called the High Income Child Benefit Charge.

Thankfully you don’t need Will and Kate’s money to start a family. Just some sensible planning and the ability to survive on minimal sleep!

Sources:

Editorial Team

Old Mutual Wealth Expert in Finance, Protection, Investments, Pensions