1. Consider cutbacks
Raising a child from birth to the age of 18 costs, on average, £166,000 for a couple, and £220,000 for a lone parent in 2023, according to Child Poverty Action Group’s annual cost of a child report. Affordability is regularly cited by people who would like to have children as a key reason for holding off doing so.
Whether you’re expecting a baby or you’re hoping to start a family soon, the first place to begin sorting out your finances is by seeing if you can cut back on what you owe and spend, says Sarah Coles, head of personal finance at the advice firm Hargreaves Lansdown.
“Do this as early as possible, starting with the easy things – like not overpaying for insurance and TV, and switching any short-term debts to the lowest possible interest rate,” she says.
2. Review any mortgage
“A mortgage is probably your biggest outgoing, so keep this under close review to make sure you’re getting the best rate, and keeping payments down,” says David Hollingworth of London & Country mortgage brokers.
“If you are remortgaging or buying a new family-size home,” Hollingworth adds, “think about the stability you need and consider a fixed rate.” A longer-term fix gives the certainty of knowing what your monthly repayments will be for the coming few years, perhaps until your baby starts primary school. This will allow you to plan your other finances around your biggest cost.
Switching to a cheaper deal, if you can, when you reach the end of your current fixed-rate period, will reduce monthly repayments, and extending your mortgage term will push them down further.
“If you have a remortgage looming, you might want to consider a longer term deal to reduce monthly costs,” Coles says.
However, she adds: “This will mean paying the mortgage later in life – which could derail your retirement plans – so don’t rush into anything without thinking through all the implications.”
It will also mean higher overall interest costs unless you reduce the term again later.
3. Beg and borrow equipment
Clothes, prams, baby monitors, sterilisers: babies do seem to require a lot of stuff. MoneyHelper’s calculator helps you tot up the cost of essentials and nice-to-haves, and includes tips on what you might be able to do without. The total cost is likely to be alarming, but can be reduced by making tactical gift requests and borrowing things from friends and family.
Holding off until you feel an item really is necessary can save you money, too. Babies move through phases of growth and development so fast you may well find something that seemed vital one week, is unnecessary the next.
4. Know your rights
Employers have strict obligations when it comes to maternity rights, including offering a workplace health and safety risk assessment and paid time off for antenatal appointments for the mother.
When you choose to tell your employer you’re pregnant is up to you. Mandy Jackson, a rights adviser at Working Families says: “It is largely a personal decision, and you can ask your employer to keep the information confidential.”
However, you should inform them by the 15th week before your due day (known as the qualifying week) to qualify for maternity benefits. This is also crucial to ensure you are protected from redundancy, dismissal and pregnancy discrimination. Jackson recommends putting the news in writing.
The government is poised to change paternity leave and unpaid parental leave rights as part of its recently announced employment rights bill. You can find out about the statutory leave and pay currently on offer, and what you may be eligible for, at gov.uk.
Your employer might have an enhanced deal for new parents. Check your contract, employee handbook or ask HR for your terms.
5. Remember child benefit
“You won’t get child benefit automatically: you need to apply,” says Coles. You can only do this once your child has been born and the birth is registered. Eligible parents can receive £25.60 a week for their first child; £16.95 for subsequent children.
If either you, or your partner, earn £60,000 or more, you will have to pay at least some of this back through the high income child benefit charge. If you earn £80,000 or more, you must repay it all. “It’s still worth registering for the benefit, even if you opt out of payments. This means that if one of the parents doesn’t work while the child is under the age of 12, they’ll get national insurance credits that will count towards their state pension,” Coles says.
Class 3 NI credits are given automatically to the parent who registers – you can transfer them between parents and guardians, but you’ll need to apply.
6. Insure against the worst
“People often don’t update their insurance when their families grow. But if something does happen, you will wish you’d put cover in place,” says April Leeson, a financial planner at the Private Office. “This includes term life insurance so that the mortgage can be paid off, but also things such as family income benefit.”
The latter is designed to pay an income on the death of the insured person, or sometimes on diagnosis of a terminal or serious illness that prevents them working.
If you have private medical insurance through your work, you may be able to add your child to the policy, usually for an extra cost.
Also consider writing or updating your will. “This is even more important for unmarried partners – without a will, in the event of your death your child will inherit everything, instead of your partner,” Leeson says. Think about guardianship, too, she adds: “Make sure you formally have in writing who you would like to look after your children in the event you are no longer around.”
7. Prepare for childcare
According to MoneyHelper, the average family pays £148.63 a week for 25 hours childcare (£7,210 a year) and £300 a week for 50 hours, £14,030 a year), while the average cost of an after-school club for five days is £67.42 a week.
There are several schemes available to parents in the UK to reduce costs. In England, for example, there are 15 or 30 hours of free childcare for children from nine months to four years for eligible working parents.
Tax-Free Childcare is a government scheme that pays £2 into a childcare account for every £8 put in by parents up to a maximum of £2,000 a year for parents of children up to their eleventh year, or sixteenth year if the child is disabled. Eligibility depends on your circumstances and where you live; the government’s Childcare Choices website has information about schemes and applications.
8. Don’t neglect yourself
“Children can easily soak up all the cash, but you have needs, too,” Coles says. “If you put your savings and long-term investments on hold, you’ll have an enormous amount of ground to make up later – particularly when it comes to pensions.”
Leeson: “Keep reviewing your finances regularly. Adjusting your spending and budget as your life changes is key.”
• This article was amended on 23 October 2024. An earlier version said that Tax-Free Childcare is a government scheme “that pays 25% of childcare costs” up to a maximum level. The government pays £2 into a childcare account for every £8 put in by parents, so the overall government contribution is 20%. Eligibility ends in the September of the child’s eleventh year (or sixteenth year if the child is disabled).
