Expecting a baby and planning maternity or parental leave is an exciting time, but it is also important to consider the financial impact that a new arrival can bring. As the cost of living crisis continues, it is now more important than ever that new parents understand how their finances will be affected and what actions they can take.
WEALTH at work, a leading financial wellbeing and retirement specialist, highlights some top tips to help new parents stay in control of their finances:
1. Understand and revise your budget
Taking maternity or parental leave will mean that your income and expenses are set to change, so it’s important to take stock of your finances and revise your budget. Don’t put this off until after the baby is born as understanding your income and outgoings each month will help you understand what you can afford. Calculate all possible sources of income. These could include any maternity or paternity pay you are expecting, your partner’s income, any benefits you will receive and any other sources of income that may apply to you. Then get bank statements and credit card bills to find a full list of expenses. Make sure you include any debt repayments you will be making. If you’ve got any money left over after you’ve paid for everything you have a ‘budget surplus’. If you’re spending more money than you’ve got coming in you have a ‘budget deficit’. If you have a deficit, it could be a good idea to look at your spending and find any areas you can cut back. If you have a surplus consider saving these funds or ensure any debt-incurring interest is paid off.
Statutory maternity pay (SMP) is 90% of your average weekly earnings (before tax) for the first 6 weeks and £156.66 or 90% of your average weekly earnings (whichever is lower) for the following 33 weeks. It is paid in the same way as your wages (e.g. monthly or weekly) and Tax and National Insurance is deducted. You are eligible if you earn on average at least £120 a week, give the correct notice, give proof you are pregnant and have worked for your employer continuously for at least 26 weeks continuing into the ‘qualifying week’ – the 15th week before the expected week of childbirth. Many companies offer enhanced maternity pay, so speak to your employer to find out what is available.
2. Plan for one off expenses
Once you have planned your monthly budget, start to plan how you will pay for one off expenses. A new cot can cost anywhere between £70 – £1000, whilst the average cost is £130. The average cost of a new pushchair is £340, however, these can cost over £2,000. The average cost of a car seat is £120, although these can cost up to £500.
Find out if family and friends will let you buy or borrow any items? Do you have savings to use for these one-off expenses, or will you be able to pay for them from your income? According to Liverpool Victoria, the average cost of raising a child in the first year is £11,498, therefore it’s important to plan ahead. Money Helper has a Baby Cost Calculator to help you find out how much you might need to cover your baby’s expenses.
3. Statutory shared parental leave
Parental leave allows parents to share time off after having a baby. Eligible couples will get up to 39 weeks of shared parental pay. Up to 52 weeks can be taken, but it must be used before the child turns one years old. If you are planning to share paternity leave, the mother (or primary parent for adoption/surrogacy) will need to end maternity leave (adoption/surrogacy leave) in order for the other parent to start paid parental leave.
Employees who were eligible for annual leave and workplace pension contributions will continue to accrue these whilst on parental leave.
Ensure you register for child benefits as you can receive £1133.60 per year for your first child, and £751.40 per year for further children. If either you or your partner earn over £50,000, you have to repay 1% of child benefit for every £100 that annual income exceeds £50,000. If you or your partner earn over £60,000, you won’t be eligible for child benefit. However, you should still opt to receive entitlements, but not payment, as if you don’t claim you may miss out on National Insurance credit for your state pension, and it will also ensure your child is automatically issued with a National Insurance number before their 16th birthday.
5. Returning to work
Keeping in touch (“KIT”) days may include training, offsite/team meetings or meetings to discuss returning to work and you will receive full pay for these days. Try to agree in advance with your manager when you think these will be. On returning to work, employees are entitled to return to the job in which they were employed. Any changes to hours or working days are agreed on an individual basis.
If you are hoping to reduce your hours when you return, make sure that you understand the impact on your net income. For example, someone earning £50,000 for 5 days a week would have a monthly net salary of £3,169. If they reduce their days to 4 days per week, their reduced gross salary would be £40,000 and a net monthly salary of £2,602*
Jonathan Watts-Lay, Director, WEALTH at work, comments; “As with all major life events, whether it be parental leave, buying a house, or retirement, it is important to face up to the reality of the situation as soon as possible, and put a plan in place of how you are going to pay for it. Spending time with your new family will be much easier if you know where you stand, rather than trying to understand what you can and can’t afford to buy whilst caring for your newborn. Your workplace can be a good source of information and support to help you understand your financial situation before and during any period of parental leave, so it’s always worth speaking to them for some guidance.”