Children are expensive. Those three words really hit home when you’re staring at the price of a pram.
People say a baby changes everything and this includes your finances. Alongside sleepless nights, endless washing and cold cups of tea comes a major shift in your household expenses.
First there’s buying all the baby gear, then your income may fall at a time when your costs likely rise, not to mention nursery fees, checking your insurance coverage, and so much more.
The latest estimates put the cost of raising a child at £250,000 for a couple and £290,000 for a single parent. As much as a house. It’s a similar time commitment too. Getting organised and reviewing your finances ahead of any new arrival can put you in a much stronger position financially.
So, here are six baby steps to help build your financial resilience.
This article isn’t personal advice. If you’re not sure if an action is right for you, ask for advice.
Baby step 1 – prepare for a drop in income
Your pay may plunge, just as your costs rise. So, step one is understanding the numbers.
Start by checking what you’re entitled to – does your employer offer enhanced maternity or paternity pay on top of the statutory minimum?
Statutory Maternity Pay (SMP) is paid for up to 39 weeks, 90% of your average weekly earnings for the first 6 weeks, then for the remainder, you’ll receive the lower of £194.32 per week or 90% of your weekly pay.
Self-employed? You can apply for something called Maternity Allowance. If you’re eligible you can get between £27 to £194.32 a week for up to 39 weeks. How much you receive will depend on your national insurance record and you can apply once you’ve passed your 26th week of pregnancy.
Next, revisit your household finances to understand if your budget can absorb new costs – have you got the headroom to add nappies and formula to the weekly shop?
Open communication with your partner about how life will work with a baby is key. It may be that you’ve always split bills down the middle, but will that feel fair if one of you has no or very little income? This could leave the stay-at-home partner having to drain their savings to meet their share.
Tackling these discussions before the baby arrives is far easier than trying to figure it out bleary-eyed for lack of sleep.
Baby step 2 – review your emergency fund
Your budget and emergency fund needs to grow with you and your family.
Will the money you have tucked away still cover 3-6 months of essential spending? Nappies (and/or extra washing, for those going down the reusable route) will be a new essential spend and babies get through an eye-watering 2,000 in their first year alone!
Where you feel comfortable sitting on the 3-6 months spectrum may also change once you have a new little dependant.
Previously you may have sat closer to three months of essential spending but now may prefer the peace of mind that comes with moving the dial closer to 6 months.
Baby step 3 – borrow, buy second-hand and be thrifty
Babies may be small, but the shopping list they come with is not. There’s the cot, pram, changing table, car seat, steriliser, bottles, baby carrier and so much more. The costs quickly add up. And babies outgrow things quickly – so items are continually being added to the shopping list.
The result? A booming second-hand market.
Parents can save hundreds if not thousands of pounds by being thrifty. Vinted, Facebook marketplace and local parent groups are packed with bargains that have only been used for a matter of months before they’re no longer needed.
If you’re really lucky you may even get your hands on some brand-new stuff, the result of duplicate baby shower gifts, or spares bought for grandparents that were never used.
Baby step 4 – do not pause your pension
When money is tight this can be the first place people think of to cut back. But if you see yourself drinking pina coladas on a beach in retirement, that seemingly small decision could cost more than you think.
Keeping up contributions during maternity leave can be a gamechanger for your retirement outlook. Why? The power of compounding. The earlier you pay money into your pension, the sooner you can start earning returns on past returns and grow your pot until you’re ready to access it from age 55 (rising to 57 in 2028).
A well-kept secret is that during paid maternity leave employers are generally required to maintain pension contributions. Your personal contributions will decrease in line with any drop in income, but your employer contributions should stay at your pre-maternity level. Do remember though, that pension rules can change and benefits depend on your circumstances.
If your employer uses salary sacrifice, they not only have to continue to pay their pre-maternity contribution, but if your income drops, they must also make up your contribution to its pre-maternity level. For women on SMP employers must cover the entire contribution – that’s your share and theirs.
Payroll errors can happen so it’s worth taking a few minutes during maternity leave to ensure your benefits are being treated correctly.
Baby step 5 – protect your family from the worst
Becoming a parent means greater financial responsibilities. If you don’t have life insurance, having a baby is a good reason to put it in place, giving you reassurance that your family is financially protected should the worst happen.
A good place to start can be reviewing what workplace benefits you and a partner have. For instance, if your employer offers private medical insurance, you may be able to add your baby to the policy from day one.
Writing or updating your will also takes on a new level of importance when you have a dependant, particularly if you and your partner are unmarried. If one of you passed away without a will, your estate could pass directly to your child, and not to your partner.
Baby step 6 – build your baby buffer
If children are on the cards, it’s never too early to start saving. Building a baby buffer – or maternity fun fund – a savings pot that both you and a partner contribute to before the baby arrives can help smooth the transition when one person’s income drops.
This is a dedicated pot for the stay-at-home parent, crucially it means they have their own money and can keep some independence. At a time when everything is changing, this can be a way to maintain balance – this is particularly true if you’ve both always had your own money.
Top tip - wherever you stash your savings, make sure it’s in an account that’s giving you a decent interest rate. Shopping around beyond just your current account can make sure that your hard-earned cash retains its value until you’re ready to spend it.
A savings platform like HL’s Active Savings can help you keep on top of great rates in the market, letting you move your money onto a new rate at the click of a button.
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The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown (company number 2122142).