Budgeting for baby
Sleepless nights go with the territory when you’re a new parent. But don’t let money worries keep you awake. At this stage of your life, extra stress and worry is the last thing you or your baby need.
The Money Advice Service can help you get ready and financially prepared.
Managing money has become increasingly difficult for many people nowadays – we live in tougher economic times, the cost of living keeps rising and job security has faded for many people.
Money worries can be worse for expectant parents, especially as the cost of having a baby can be so steep. Research indicates that the cost of raising a child until their fifth birthday can be around £43,095*. However these costs differs widely across the country.
Expecting a baby is hugely exciting, but can also be pretty daunting when it comes to the money aspect because your small bundle of joy will make a big difference to your household spending.
A new arrival nearly always means a drop in disposable income for most people, so the trick is to start planning ahead, and take control as soon as you can – work out how much it’s all going to cost and how much you can afford.
ON A BUDGET
It’s important to work out your budget as soon as possible, ideally as soon as you become pregnant. It’s never too early to start saving!
Consider how the baby will affect your income and make time to think about these three important factors:
• If you’re employed, think about how stopping/cutting back your hours will reduce your earnings.
• If this is your first baby, consider how much you’ll need to budget for essential equipment you’ll need from day one, such as a buggy, a car seat, cot, clothes, bedding and toys; and of course nappies, milk (if you are not breastfeeding) and baby food.
• If you have a partner, have a conversation about how you will split the financial responsibilities while you are on maternity leave – for example, who will pay for what.
It is always worth checking which benefits will be available to you to help towards the costs of having a baby. This could include child benefit and maternity allowances. You will need a MAT B1 Certificate or a letter from your doctor or midwife in order to claim Statutory Maternity pay from your employer or Maternity Allowance from the government. You should receive your Certificate from your midwife or doctor after your 20-week scan.
If you’re getting other benefits you might be eligible for a Sure Start Maternity Grant towards the cost of your first baby, worth £500. You can also find out if you qualify for food vouchers and vitamins from Healthy Start. It’s also good to know that in England, prescriptions are free while pregnant and for a year after the birth (prescriptions are free for everyone in Wales, Scotland and Northern Ireland anyway).
Tax credits may be available to you if you have a low income. There are two types – Child Tax Credit and Working Tax Credit – and with a new baby you might be eligible for one or both. Eligibility depends on your household income, but you may be surprised how much you can earn and still qualify. Make sure you claim within one month of your baby’s birth because payments can normally only be backdated for one month**.Use the Tax credits calculator on the GOV.UK*** website to find out if you qualify and get a rough idea of how much you could be entitled to.
These tax credits are being phased out and replaced by Universal Credit. If you are in an area where it is fully rolled out, you’ll probably be asked to claim with Universal Credit. You can check if you live in an area where universal credit is fully rolled out at universalcreditinfo.net
KEY FACTS ABOUT TAX CREDIT:
• The basic amount of Child Tax Credit is up to £545 a year
• You don’t need to be working to claim Child Tax Credit
• Only one household can get it for a child, for example: if you live separately from your partner you can’t both claim.
• You will still be entitled to get Working Tax Credit for the first 39 weeks of maternity (or adoption) leave or your period of ordinary paternity leave so long as you have been working at least 16 or 30 hours a week before your leave.
You could also get extra tax credits to help with the cost of childcare. The childcare element of Working Tax Credit is designed to help cover some of the cost, so if you are eligible you’ll still normally gain by working. It can be worth up to £122.50 a week (or £210 if you have more than one child). And you could be eligible whether you’re employed or self-employed.
Don’t overlook the fact you also need to protect your dependents. Check what protection insurance you have such as life insurance or critical illness cover. You may need extra cover once the baby arrives, so begin shopping around now to choose the most appropriate option to suit you. Use this time also to get any debts under control and build up some savings if you can. Use the Money Advice Service debt locator tool at http://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator to find free debt advice in your area.
On the register
When your baby is born, you must register the birth within 21 days in Scotland and 42 days in the rest of the UK. Try and do this at your local registration office as you’re going to have your hands full in these first few weeks. It’s worth putting in your claim for state help quickly to help your cash flow and to make sure you don’t lose any, as most state benefit claims can only be backdated three months.
As soon as you have registered your baby’s birth, put in your claim for Child Benefit. You’ll find a claim form in the Bounty Pack you get after birth, or request one from GOV.UK.
Child Benefit can be a big boost to your family budget. If you’ve just had a baby make sure you get your claim in before your baby is three months old. And even if you think you won’t be entitled to anything because either you or your partner earns over the limit, you should still claim – otherwise you’ll miss out on a number of other entitlements:
• National Insurance credits that protect your entitlement to State Pension
• Other benefits such as Guardian’s Allowance
• Your child being automatically issued with a National Insurance number before their 16th birthday
KEY FACTS ABOUT CHILD BENEFIT:
• If either you or your partner earns between £50,000 and £60,000 a year, you will have to pay a portion of your Child Benefit back in extra Income Tax.
• If you or your partner earns over £60,000 you will have to repay all of your Child Benefit in the form of extra Income Tax.
Read our guide called Child Benefit for people earning £50,000+ for more information.
PLANNING FOR THE FUTURE
Your statutory maternity leave will end within 12 months after you start using it. If you want to return to work earlier or later than intended, you must give your employer eight weeks’ notice in most cases.
You may be entitled to financial help from the government through Working Tax Credit, to claim or ask for a review of your previous claim contact GOV.UK.
Further information is available from the Money Advice Service online. The ‘Having a Baby’ section at www.moneyadviceservice.org.uk/parents provides comprehensive advice – things to do before baby arrives and answers the big questions about your changing circumstances; plus there are lots of free calculators to help you plan, budget and save cash, in time for baby’s arrival. If you have a specific question, you can also have a webchat with a trained Money Adviser – click on the homepage button.