Your finances after... starting a family

Becoming a parent is undoubtedly an exciting time, but it is also financially demanding. New parents and people planning to become parents should follow these simple steps to ensure they are prepared.

According to insurer LV= the average cost of raising a child to age 18 is £218,024, so it is worth preparing your finances for the assault they are going to endure when a baby comes into your life.

Yvonne Goodwin, managing director of Leeds-based independent financial adviser Yvonne Goodwin Wealth Management, said couples planning on having a child should plan their finances in advance.

Goodwin recommends looking at the immediate impact that pregnancy and maternity leave will have on your household budget.

Budget planning

‘Before having a baby, consider your budget. How long are you likely to be without a salary, and try living on one salary – will it cover all the usual expenses? If it will, then the money you have saved while trying this out will be a good emergency fund to hold,’ she said.

The next step is to check what you are entitled to through your employer, this includes any maternity or paternity pay, and importantly any life cover or disability income protection plans your employer may offer.

Quite often employees are offered different types of protection plans, but if your employer doesn’t, or you are self-employed, then you need to look at protecting your income and making sure your family are catered for in the event of your death.

‘If either of you are self-employed, or don’t have any cover through work, consider taking out cover for both death and disability, and possibly critical illness cover too,’ Goodwin said.

‘With 18 years of responsibility, and maybe even more when you consider university for your child, then that’s a big financial responsibility, and you need to insure for catastrophes.’

Put some money aside

Would-be parents should set aside an emergency fund that they can draw on when the baby is born. Goodwin recommends saving into a cash ISA (individual savings account). Both parents can save up to £5,640 for the tax year 2012/13.

Goodwin said this is the most tax efficient place to put emergency funds as they are still accessible, and couples should commit to saving a little each month.

‘Set up a standing order or direct debit from your current account as soon as your salary is paid in each month,’ she said.