Having a baby is one of the most exciting, life-changing events 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 2021, the total cost of raising a child to the age of 18 now stands at £160,692 for a couple and £193,801 for a lone parent [1]. These numbers aren’t small, which is why it is essential to consider your financial planning options before starting a family.
The report highlights that the total cost of raising a child is the highest it has been since calculations started in 2012. Since 2012, the total cost has risen by 13% for couples and 25% for lone parents. The rise in the last year has been large; 3.6% for couples and 3.3% for lone parents.
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 understand 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 your baby’s arrival (for example, if you reduce or stop working), 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 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 pool of money 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 about having a financial safety net so your family can remain financially secure should the unthinkable happen. Family protection includes life insurance, critical illness cover, and income protection.
Making a Will that shares your wishes after death is also essential. 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 your child’s guardian will be, should you die before they become adults.
Financial Foundation
All parents want to give their children the best possible start in life. As a new parent, one of your key priorities is 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 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 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 (JISAs) 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.
When it comes to making the sorts of plans we’ve mentioned above, the help of an expert can be invaluable. Preparing financially for your new baby doesn’t have to be complicated or overwhelming. Following these simple tips can ease the financial burden.
To find out more about how we can help, feel free to book a free no-obligation chat here.
[1] https://cpag.org.uk/policy-and-campaigns/ report/cost-child-2021
