On average in 2021, the total cost of raising a child to the age of 18 now stands at £160,692 for a couple and £193,801 for a lone parent[1]. These numbers aren’t small, which is why it is important to consider your financial planning options before starting a family.
The total cost of raising a child, the report highlights is the highest it has been since calculations started in 2012. Since 2012, the total cost has risen by 13% for couples and 25% for lone parents. The rise in the last year has been particularly large – 3.6% for couples and 3.3% for lone parents.
Fortunately, there are ways to ease the financial burden and protect your new family.
Create a budget
One of the best ways to prepare for the added expenses of having a baby is to create a budget. Track your income and spending so you have a clear idea of where your money is going each month. Then, start setting aside money each month to cover the anticipated costs of having your baby.
If your income is likely to change after the arrival of your baby (for example, if you reduce or stop working) then it may also be a good idea to consider cutting some costs. It can be helpful to sort your expenses into essential and non-essential items so you can find ways to save.
Emergency fund
Building an emergency fund is a savings account that you can easily access and use in case of an unforeseen circumstances. This could help you weather a financial storm that comes your way and keep you from going into debt. Aim to save at least three to six months’ worth of living expenses, or what you can afford, so you have a cushion in case of an unexpected financial emergency.
Remember this is a pool of money that should only be used during times of financial need, for example, resulting from a job loss or unexpected expenses such as major home or car repairs, illness, etc, that can cause real financial hardship.
Family protection
This is all about having a financial safety net in place so that your family can remain financially secure should the unthinkable happen. Family protection will typically include life insurance, critical illness cover and income protection.
It is also essential to make a Will that shares your wishes after death. You will need to appoint executors and trustees to administer your estate and ensure it is shared in the way you intended it to be. You can also determine who will be your child’s guardian, should you die before they become adults.
Financial foundation
All parents want to give their child the best possible start in life. As a new parent, one of your key priorities is undoubtedly ensuring that your child has everything they need to lead a happy and successful life. Part of this involves setting aside money for their future – whether it be for their education, purchasing a first property or simply establishing a solid financial foundation. It can also teach them valuable lessons about managing their finances.
When it comes to saving and investing the sooner you begin, the more time the money has to grow. Options may include: Bank/building society accounts, Junior Individual Savings Accounts(JISA), National Savings & Investments Children’s Bonds and a Junior Self-Invested Personal Pension (JSIPP). No matter how you choose to save or invest for your child’s future, the important thing is that you start now.