How to cope with the financial pressures of
having a baby by Sarah Pennells,
author of ‘Financial Bliss’
It is often said that if parents worked out
how expensive having a child would be, they would never take the plunge.
Thankfully, few seem to do the sums, or if they do, they do not let it put
Estimates of the cost of looking after a child until they reach eighteen
vary widely. One investment company reckoned it was £43,000, or £46 a week.
Although many parents would probably complain that their children become
more financially demanding as they get older, it is the first few months and
years that can put real pressure on family budgets.
That is because you have to pay out for all
those baby-related extras at a time when money can be really tight. Your
joint income may fall by 25% or more if you take maternity leave. Money
commitments that were manageable before you were planning a family may put a
strain on the budget now. And if you do not find it easy to manage your own
money – either in your own right or as a couple – it could be a difficult
It is not just the fact that you have less
money that can cause problems. Even if your pregnancy is quite
straightforward there will be times when you feel exhausted and may suffer
from morning (or afternoon!) sickness. And at times like that you are less
able to cope with things that normally would not have been an issue.
Denise Knowles, a relationship counsellor at Relate, says that the pressures
of having a baby can easily trigger conflicts over money. “Having a baby can
be a very confusing and conflicting time. You have less money, but there are
all kinds of things to buy for your new baby.” Some mothers-to-be who are
used to earning their own money find it difficult when they have no money of
their own and have to rely on their husbands or partners financially.
This change in
status within the relationship can mean that resentment builds and what
starts off as a financial difficulty can become a relationship problem. In
that case, the best advice is to try and talk: try and make sure that you
you’re your conversations focused on the particular money worry you have.
Work out what is really bothering you and whether it could be resolved
relatively easily. Perhaps the partner who has stopped working does not like
the idea of having to account for every penny they spend, so one solution
could be for them to be given some of their ‘own’ money every month to spend
as they choose. Or maybe you are worried that you or your partner will find
it difficult to manage on your lower income.
can develop around work. The new mum may want her partner or husband to take
a different job; either one that pays more or one that gives them more time
to help at home, or they may feel annoyed that their partner is never there
worry over debts can trigger the arguments. You will not be able to cushion
yourselves from the financial impact of having a baby completely, but taking
some simple steps should improve your position. Whatever you do, do not
ignore the problem as it will not sort itself out.
If you owe money through personal loans or
credit cards, try and cut down your spending before the maternity leave
kicks in. Use the money you save to increase your debt repayments and, if
possible, switch your loans to a more competitive rate and your credit cards
to a 0% deal.
Some banks charge a redemption penalty on loans if you repay them early, so
check the small print of the loan agreement or contact the lender if you are
in any doubt. There are plenty of financial comparison web sites that will
give you details of loans and interest rates; just bear in mind that the
interest rate that lenders quote in their adverts is not one they have to
offer every applicant, so you may not qualify for the advertised interest
rate, particularly if your credit history is not very good.
If you are moving your credit card balance to
a 0% deal, watch out for balance transfer fees, which can be up to 3% of the
amount you move. Whilst you will not have to pay interest on the balance,
the transfer fee is not interest-free.
If you do not know where your money is going,
try keeping a spending diary for a while. The idea is very simple: you
write down what you spend, when you spent it and what you spent it on. It
works best the longer you keep it (because then you include more of your
irregular spending, such as presents and holidays). Just the act of keeping
a record of your spending is often enough to show you where savings can be
But if it does not do the trick, you should
draw up a budget. This means working out how much you have coming in every
month and how much you spend on things like rent or mortgage, food, gas,
electricity etc. If you need to make cutbacks, see if you can save money by
switching your energy supplier or your mobile phone company. And practice
your bargain hunting skills! Check out shopping comparison sites like
try supermarkets for baby clothes and eBay or the recycling network
freecycle for other items.
If money is really tight and you have a flexible mortgage, you may be able
to make underpayments on your loan - where you pay less than the full
monthly amount - or take a payment break (where you miss payments for a few
months). Not all flexible mortgages allow these and some will only let you
underpay your loan once you have built up a reserve through overpayments.
Payment breaks or reduced payments can give your finances valuable breathing
space, but you will be charged interest on payments you have missed, so it
is best kept as a short-term solution.
Make use of
help that is available, whether it is support from friends, freebies from
supermarkets and nappy manufacturers (you can normally sign up for these
online) or state benefits. You cannot claim child benefit until you have
registered your baby’s birth, but you should receive an application form in
your ‘bounty pack’. Child benefit is worth £18.10 a week for your first
child and £12.10 a week for any other children.
Once you have started claiming child benefit,
you will be sent a voucher for £250 (or £500 if you are on a low income) so
you can open a child trust fund (CTF) for your child. It is a special
account for children where money can be paid into a bank account, or
invested in shares. When your child reaches 18, they can cash it in and
there will be no tax to pay on the proceeds of the account. The tricky part
is deciding which type of account to open and many parents have complained
that they are given too much information and not enough advice.
However, if you cannot decide which type of trust fund account to open, the
government will open one for you (after 12 months). My advice is to have a
think about whether you would prefer a savings account or one that invests
in shares, and open it as soon as possible. You can always switch to a
different company or different type of account if you feel you have made the
wrong choice, but at least this way you are in control. Then, all you have
to do is to encourage friends and family to pay Christmas and birthday money
into the CTF (they can pay in up to £1200 a year between them).
Most parents are also entitled to claim child
tax credit, although this benefit has come in for a lot of criticism for the
way the claims process works. I would still advise you to apply if you think
you are eligible though, but be prepared to follow your application up. In
simple terms, you are entitled to receive child tax credit if you earn less
than £66350 as a household (for the first year of your child’s life only,
the limits go down by around £6000 after that).
The child tax credit is awarded for the full
tax year (i.e. from April to April), but if your circumstances change during
that year (perhaps because you have received a pay rise), you must inform
Revenue and Customs as soon as possible. Working out how much you may get is
very complicated, but it can add up to several hundred pounds a year or
more, which is not something many families can afford to turn down.
||Read more in
Financial Bliss by Sarah Pennells
ISBN: 9780273715047 £9.99