In the first nine months of 2020, there were 464,437 new babies welcomed across the UK, according to the Office for National Statistics. That’s more than one baby every minute! If you’re among these new parents, or know someone that is, you’ll know that there’s a lot to do – including taking some financial steps to protect your family, which Lisa Baker, Independent Financial Adviser at Pembroke Financial Services, explains.
1. Review your budget
With a new baby, your day-to-day outgoings will change, so it’s worth reviewing your budget. How will your everyday expenses change, and what one-off purchases will you need to make? You should also think about how costs will change in the next few years. For example, do you need to factor in childcare costs?
Budgeting isn’t a task most of us look forward to, but it can help ensure both your short- and long-term goals stay on track.
2. Reassess your insurance policies
Lisa says: “Welcoming a child can shift your priorities and concerns. As a result, taking a look at existing insurance policies, as well as considering if new ones are now appropriate, should be a step you take. It can provide peace of mind and financial security, even when the unexpected happens.
“If you already have insurance policies in place, you should review these to ensure they cover your child. These may include private health insurance. You should also check that policies reflect your current circumstances. For example, does a life insurance policy provide enough cover that your loved ones would be financially secure if something happened to you?”
3. Update your will
If you don’t already have a will in place, now is the time to write one. Even if you do have a will, it’s worth updating it to reflect your new arrival.
Lisa added: “Writing a will is the only way to ensure your assets are distributed in the way you want when you pass away. For parents, it’s also where you assign a guardian for your child if the worst were to happen. It’s not something anyone wants to think about, but if no guardian has been appointed, a court will decide a child’s fate. It could mean your child’s guardian is someone they don’t know well, or the situation may cause conflict between family members.”
Despite how important a will is, 48% of parents with a child under the age of 18 don’t have one in place, according to Will Aid.
4. Open a Junior ISA
Lisa continued: “It’s never too soon to start saving for your child’s future. A Junior ISA (JISA) is a tax-efficient way to save or invest on behalf of your new child.
“Each tax year, you can contribute up to £9,000 to a JISA. This can either be saved into a Cash JISA, with savings earning interest, or a Stocks and Shares JISA, where the money is invested. A JISA is a useful way to build up a nest egg for your child that could help them reach milestones, from going to university to buying their first car.”
You will need to decide between Cash or Stocks and Shares. JISAs will usually offer more competitive interest rates than their adult counterparts but may still be lower than inflation, meaning the savings will fall in value in real terms. In contrast, investing through a Stocks and Shares JISA could deliver higher returns, but there is also risk. It’s important you take a long-term view of risk and select investments that are appropriate for your goals.
Keep in mind, money placed in a JISA cannot be accessed until the child turns 18.
5. Apply for Child Benefit
Child Benefit is paid by the government to support parents or guardians. For an eldest or only child, it is £21.15 per week, and for additional children it is £14 per child per week. If you or your partner’s individual income is over £50,000, you may be taxed on the benefit, which is known as the “High Income Child Tax Benefit Charge”. You lose all of the benefit if you earn over £60,000.
However, if you or your partner is a high earner, you should still apply for Child Benefit, even if you won’t benefit financially. Claiming Child Benefit for a child under 12 will mean you receive National Insurance credits. These will count as qualifying years when your State Pension is calculated. You need 35 qualifying years to receive the full State Pension. So, if you’re taking a career break to raise children, applying for Child Benefit can ensure your retirement stays on track.
Reflecting your growing family in your financial plan
As your family grows, your plans may change too. We’re here to help you reflect new goals or concerns in your financial plan. Get in touch with us today to discuss how you can create a financially secure future for your family.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.