Friday, 18 September 2015
Bring up baby - without breaking the bank
If you have a little one on the way or are planning to start a family, these top tips from consumer finance expert Julie Hutchison will help you get financially prepared for parenthood.
Royal parents may have to think about a lack of privacy, an endless supply of designer babywear and the baby's much-anticipated name, but money is not likely to be a big concern. But for most parents, bringing a baby into the world is an expensive business. It's been estimated that the first year of a baby's life can cost parents around £7,200*, but starting a family needn't break the bank.
1. Don't get carried away
While recreating your wardrobe in miniature may be hard to resist, the one thing to remember when buying for your baby is to think sensibly – and don't be tempted to pop it all on a credit card. It's likely that your baby will grow out of half of the clothes you've bought him or her even before you've finished paying for them. Challenge yourself to focus on what's essential.
2. Use childcare vouchers
Once you discover you're pregnant, it's worth checking whether your employer - or your partner's - offers a childcare voucher scheme. You can use childcare vouchers to help pay nursery or holiday club fees, which could save you thousands a year. As you can collect them until your child is 15, it can end up saving you tens of thousands of pounds, so they're worth their weight in gold!
3. One income source is tougher than two
Most couples will need to prepare for a drop in income as one of you will have to leave work, at least temporarily, but there are things you can do to cushion the blow beforehand.
The more financially prepared you can be for your new arrival, the better. Make sure you check your employer's parental leave policy to check how your finances are likely to fare during any anticipated leave. And weigh up who is going to use the parental leave. The focus isn't maternity leave now - it's an open discussion about which of the couple is best placed to use the leave available, and you can share it between you, too.
Creating a clear monthly budget is also a great place to start. Work out all of the things that are necessities, such as your mortgage, utilities and car. Then look at other non-essential expenses, such as eating out, and luxuries like make up and clothes. Speak to friends and family to estimate how much you think you will be spending additionally once the baby has arrived, then look to your current non-essential expenditures and establish what you can cut back on in advance of your baby's arrival.
4. Something borrowed
The second-hand route can be an excellent way to save money. Talk to any friends and family who have recently had children and ask if they have anything they no longer need. Whether they kindly donate them for free, or you buy them at a reduced rate, you'll make huge savings. It's also worth shopping around online – sites such as eBay are full of great second hand items being sold for a fraction of their original cost.
5. Saving for your child's future
When it comes to saving for your child's future, there's no such thing as starting too soon - if you haven't already started, start now. Costs will inevitably arise out of the blue over the forthcoming years; from school trips, dinners and uniforms, to holidays and future education - it all adds up.
Anyone with dreams of their child being a future academic would also be wise to start saving as early as possible. With the National Union of Students estimating the average cost of sending a child to university in London at over £23,000 a year**, the earlier you can start saving, the better!
Parents can save tax-free for their children up to the age of 18 through a Junior ISA. The new annual tax free limit for saving into a JISA or Child Trust Fund is £4,080 from 6 April 2015 - so if you are saving monthly, that's £340 a month you can set aside, meaning you'll have a sizeable sum by the time they reach their 18th birthday. But if you're worried about your youngster getting their hands on money at the age of 18, you could also choose to save inside your own ISA – that way, you stay in control of what money gets handed over, and when.
Julie Hutchison is Standard Life's consumer finance expert.