Having had my first baby in January I was bowled over by sheer exhaustion. I was so busy diligently following guides and speaking to professionals about every decision concerning my new baby, that I realised I had somewhat neglected my finances (hard for a Financial Advisor to admit!). While I am so overwhelmed with everything at this precious time I thought it would be useful to compile my New Parents guide to your key financial decisions.
Your financial planning shouldn’t go on hold when you start a family, in fact it is more important than ever to not only watch the pennies but to make sure that robust plans are firmly in place to secure the financial future of your growing family. So here is an essential check list to help keep you on track- even after a sleepless night!
Protecting your family
Having a baby is a costly exercise! According to the CPAG (Child Poverty Action Group) the cost of raising a child (excluding housing, childcare and council tax)1 from birth to 18 is £75,436 for a couple/family or £102,627 for a single parent/guardian, with this amount steadily rising in 2019. In the early years this is often done on a shoestring as one parent reduces their workload to take care of baby. Now imagine having to pay your bills whilst one (or both) parents have suffered a serious illness or sadly passed away? Aside of the emotional trauma, from a financial position, how would your family cope? Life and Critical Illness insurance is there to provide protection in these situations and can be tailored to your needs. There are many options to choose from and getting the right advice appropriate to your needs is essential. A Prosperity Financial Advisor can tailor make a cost-effective solution that is appropriate and fits your unique family. To avoid paying for unsuitable insurance you will also need to review any existing cover you have in place to make sure what cover you currently have is suitable and sufficient to your needs.
Most people know that a Will sets out what happens to your assets after you die. But did you know you can also make plans for the custody of your child? The responsibility of raising a family is huge and if you were to die before they reach adulthood that responsibility doesn’t end. An up to date Will can specify what assets you want your children to receive and when, as well as who should take care of your family when you’re gone. It is also important that any such arrangements are discussed with your nominated individuals to make sure that your wishes are adhered to.
Saving for the future
Driving lessons, university fees and house deposits may seem far away for your little one at the beginning, but I am reliably informed that the next 18 years will fly by far too quickly! Saving early is essential and many parents set up a child’s savings account for regular amounts, topped with any gifts/birthday money until a nest egg is built so that your child can use it at that point in their life. When saving over a long period of time it is worth shopping around for the best rate of interest and the most beneficial tax treatment. A Junior ISA (JISA) often ticks both boxes with an annual tax free savings limit of up to £4,368, at the time of writing this article (2019/20 tax year), until the child reaches the age of 18. Banks and Building Societies offer cash JISAs with interest rates up to 4% but investing in stocks and shares may be an attractive option too; the savings could grow more and the longer timescale means you can ride out most temporary dips in value. As with all savings the sooner you start the more they will have: £50 a month for 18 years with a growth rate of 4% a year has the chance to build to a substantial £15,800 for example.
Maximise your pension
I’m sure you’ve noticed the common theme in this guide by now… every penny counts! Most families are entitled to Child Benefit at a rate of £20.70 a week for the first child and £13.70 for each additional child. One exception to this is where one parent earns over £50,000 a year2. This exception results in many families not bothering to claim, however this has unintended consequences. Even a failed claim for child benefit adds a ‘marker’ on your national insurance record leading to a qualifying year if you haven’t worked and paid no National Insurance Contributions. Qualifying years are used to calculate how much state pension you get. Sadly, many parents think they won’t get child benefit and therefore don’t make a claim leading to gaps in their national insurance record and ultimately less pension. You should make the claim even if you think you’re not eligible! The Government website offers guidance on how to do this: https://www.gov.uk/child-benefit-tax-charge
Now you have a New Parents guide to some financial essentials! Because your time and stamina are very precious, I would always advise speaking with your Prosperity Financial Advisor.
Don’t forget, initial meetings are free of charge. Your Advisor is a professional who will make sure that your family benefits from the most suitable plans at the best possible price. With that taken care of, you can get back to enjoying your bundle of joy!
Share this guide with any new or expectant parents you know and I’m positive you will be repaid in new baby cuddles! Now where’s the coffee…