Practical tips for preparing your household financially for a new baby
Becoming a parent is a huge financial responsibility as well as a lifestyle change. Make sure you have done your best to build a strong financial foundation, and evaluate your options for working arrangements well before the birth of your child. You can use the HSBC Budget Calculator to work out your outgoings – taking into consideration your new lifestyle and spending habits – and ensure they do not exceed your monthly income. If you change your working arrangements, calculate what your new income will be, and think about how your costs will change, what adjustments you can make and how long this situation will last for.
Get your finances in order
First and foremost, consider paying off as many small debts as you can to stand you in good stead for the arrival of your baby. Your spending is likely to increase when you have another mouth to feed and person to clothe, so you should try to eliminate ongoing financial burdens such as overdrafts, credit cards and loans wherever possible.
First and foremost, consider paying off as many small debts as you can to stand you in good stead for the arrival of your baby
Consider what support is available to you
You may be entitled to various benefits and financial support, either provided by the Government or your employer, to assist with the cost of raising a child.
Mothers who fit certain employment criteria have the right to 26 weeks of ordinary maternity leave and 26 weeks of additional maternity leave, making one year in total. The combined total 52 weeks is known as 'statutory maternity leave'. You don’t have to take all of it, but you must take two weeks (or four weeks if you work in a factory) of compulsory maternity leave after your baby is born. Statutory maternity pay can be paid for up to 39 weeks; at 90% of your average weekly earnings for the first six weeks and £128.73 or 90% of your weekly earnings – whichever is less – for the remaining 33 weeks. This is paid by your employer, which then reclaims all or most of it back from the Government. Visit the Government website for more information.
Your employer may also have its own maternity leave scheme, which could be more generous than the statutory one. Check with your employer to see if it offers an alternative scheme.
Fathers and partners are entitled to up to 26 weeks of ordinary statutory paternity leave, and may be able to get additional statutory paternity leave. You may also be able to get statutory paternity pay, which is the same amount as statutory maternity pay.
Either parent may also qualify for statutory parental leave. This is extra time off work to look after your child that can be taken at any point before their fifth birthday. Each parent can take up to 13 weeks of parental leave for each of their children. Statutory parental leave is unpaid, but check with your employer as there may be something in your contract about paying you during this period. You may be entitled to claim income support; visit the Government website for more information.
You may also be entitled to claim financial support from the Government, depending on your circumstances. Tax credits are payments from the Government, which are not taxable. You may qualify for means-tested child tax credit, and if you and your partner both work 16 hours or more a week, you may be able to get extra tax credits to help fund the cost of registered childcare. This can help with up to 70% of your eligible childcare costs. Visit the Government website for more information.
Whereas child tax credits are means tested, child benefit is a universal amount that all parents can claim when their baby arrives. This is currently worth £20.30 a week for your eldest child and £13.40 a week for each of your other children. Visit the Government website for more information.
To find out more about financial support for parents, including child benefit, maternity and paternity pay and child tax credits, visit the Government website.
Evaluate your working options
Once you’ve got your finances in order and considered what support is available to you, it’s time to decide on your working arrangements. You can use the HSBC Budget Calculator to weigh up the cost implications of cutting back your working hours and to help evaluate your options.
When one parent stays at home
Choosing to become a one-income family while one parent stays at home can be challenging for even the most frugal-minded couples, but you can make the transition smoother by realistically anticipating the adjustments you will have to make.
Create a budget – you can use the HSBC Budget Calculator to get a snapshot of your spending habits each month, then see where adjustments can be made. Use the tool to check what your budget would be with different income levels, depending on your chosen working arrangements, as well different outgoings, looking at how you can cut back costs.
Lots of minor savings on non-essential items can add up. Think about what is a must-have and what is a luxury, such as buying coffees and dining out. If you stop working, you should also take into account the impact that this will have on your travel costs. If you are considering the option of one parent staying at home, try spending a month living on one income as a trial run – you can use your second salary to pay down existing debt, or create an emergency fund.
Check with your human resources department about the possibility of having to repay any maternity pay before making the decision of not returning to work.
When both parents return to work
If both parents choose to return to work, a flexible working pattern may allow you to achieve a better work-life balance, but consider which pattern would best suit your needs. Arrangements such as homeworking, job sharing or working annualised hours can help you to save on expenses involved in returning to work, such as childcare and travel. Many employers provide flexible working opportunities, but be aware that these may take some time for your employer to arrange. Talk to your HR department to find out more.
Whether you choose to continue working full or part time, you will want to find reliable, affordable childcare to make returning to work a realistic option. All three- and four-year-olds are entitled to 15 hours a week of free nursery education for 38 weeks of the year. This can take place in nurseries, playgroups, preschools or at a childminders. You can find out what childcare is available in your area by visiting the Government website.
Many parents find that the most low-cost and flexible option for childcare is a relative. Au pairs may also be one of the cheaper options, as you pay them mainly in providing accommodation, and some pocket money on top. Bear in mind, however, that because they will be staying in your home, au pairs come with other expenses – you will also need to calculate extra food, heating, electricity and water costs. Childminders are self-employed so you won’t have to pay any tax on top of the fee, although they may charge more in an area where there’s high demand.
Day nurseries set charges themselves, and can vary in different areas but, on average, they charge from £25 to £50 per day. Before your child is two years old, you might find that nursery places tend to be more expensive because babies and toddlers require more hands-on care. And remember that many nurseries also charge a fine if children are collected late.
A nanny is usually the most expensive option, as they are qualified professionals. When you hire a nanny, you effectively become an employer, and you will have to pay tax or National Insurance for your employee. Nanny’s fees start at around £6 to £9 per hour but can vary greatly.