Starting a family – What steps to take to prepare financially
Having a baby is one of the most exciting, life-changing events that you’ll ever experience. But along with the joy and happiness that comes with starting a family, there is also the reality of the added costs.
On average in 2024, the total cost of raising a child to the age of 18 now stands at £223,256 for a couple and £287,452 for a lone parent[1]. Excluding rent and childcare, the minimum cost stands at £84,474 for a couple and £115,056 for a lone parent. These updated figures reflect inflation and substantial cost-of-living increases seen in recent years.
These numbers aren’t small, which is why it is important to consider your financial planning options before starting a family.
The total cost of raising a child, the report highlights is the highest it has been since calculations started in 2012.
Fortunately, there are ways to ease the financial burden and protect your new family.
Create a budget
One of the best ways to prepare for the added expenses of having a baby is to create a budget. Track your income and spending so you have a clear idea of where your money is going each month. Then, start setting aside money each month to cover the anticipated costs of having your baby.
If your income is likely to change after the arrival of your baby (for example, if you reduce or stop working) then it may also be a good idea to consider cutting some costs. It can be helpful to sort your expenses into essential and non-essential items so you can find ways to save.
Emergency fund
Building an emergency fund is a savings account that you can easily access and use in case of an unforeseen circumstances. This could help you weather a financial storm that comes your way and keep you from going into debt. Aim to save at least three to six months’ worth of living expenses, or what you can afford, so you have a cushion in case of an unexpected financial emergency.
Remember this is a pool of money that should only be used during times of financial need, for example, resulting from a job loss or unexpected expenses such as major home or car repairs, illness, etc, that can cause real financial hardship.
Family protection
This is all about having a financial safety net in place so that your family can remain financially secure should the unthinkable happen. Family protection will typically include life insurance, critical illness cover and income protection.
It is also essential to make a Will that shares your wishes after death. You will need to appoint executors and trustees to administer your estate and ensure it is shared in the way you intended it to be. You can also determine who will be your child’s guardian, should you die before they become adults.
Financial foundation
All parents want to give their child the best possible start in life. As a new parent, one of your key priorities is undoubtedly ensuring that your child has everything they need to lead a happy and successful life. Part of this involves setting aside money for their future – whether it be for their education, purchasing a first property or simply establishing a solid financial foundation. It can also teach them valuable lessons about managing their finances.
When it comes to saving and investing the sooner you begin, the more time the money has to grow. Options may include: Bank/building society accounts, Junior Individual Savings Accounts(JISA), National Savings & Investments Children’s Bonds and a Junior Self-Invested Personal Pension (JSIPP). No matter how you choose to save or invest for your child’s future, the important thing is that you start now.
Government support & benefits
Families in the UK have access to several forms of government support to help with the costs of raising children. Child Benefit is a universal payment available to most parents or guardians, providing regular financial assistance for each child. Tax-Free Childcare enables working parents to claim up to £2,000 per year, per child, towards approved childcare costs, easing the burden on working families. Additionally, Universal Credit offers comprehensive support for families on a lower income, incorporating help with living costs and additional allowances for children and childcare expenses. Together, these benefits play a crucial role in supporting families’ financial well-being throughout their children’s upbringing.
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THE VALUE OF INVESTMENTS CAN FALL AS WELL AS RISE AND YOU COULD GET BACK LESS THAN YOU INVEST. IF YOU’RE NOT SURE ABOUT INVESTING, SEEK PROFESSIONAL ADVICE.
Source data:
[1] For source details, see the latest CPAG reports: https://cpag.org.uk/policy-and-research/findings-our-projects/cost-child-reports
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