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Financial Planning for New Parents

Managing director, Matthew Irvine, reflects on the important considerations to make to your finances when having children, as he shares his personal experience entering parenthood.

 

Financial Planning when becoming a parent…

Having just returned to work from Paternity leave following the birth of my first child, I have been considering the impact financial planning can have on the lives of new parents. Whilst I can appreciate that financial planning will be low on the list of priorities when having children (especially for the first time), it is not something to be overlooked.

I thought I would provide some helpful suggestions on how financial planning can assist with long term financial goals, and why it is especially important during this key life change. A few smart and straightforward actions can give you peace of mind and set you and your family up for a financially successful future.

I have broken it down into a few key areas of budgeting, saving & investing, and protection options, for you to think about and discuss with a financial adviser.

“Smart budgeting can help focus on the new arrival rather than thinking about finances,”

 

Budgeting

I think everyone is well aware that becoming a parent will mean more monthly expenses whether that be for childcare, nappies, baby formula or the mass of gadgets suddenly required for children.

Budgeting for these prior to the baby’s arrival can build up a surplus of cash and ease any financial worries when your baby does arrive. Especially if one parent might be working reduced hours or receiving maternity pay. Smart budgeting can help focus on the new arrival rather than thinking about finances.

 

Protections

No one likes to think about the worst-case scenario happening, especially at such a happy time, but with this life change you are suddenly not only responsible for yourself, but also for your child who depends on you for everything.

Making sure you have the correct Life cover in place to cover any liabilities such as your mortgages, or having Illness cover can be useful tools for further peace of mind.

Private Health Insurance is another consideration. In the UK, private medical insurance isn’t widely utilised however having dependants can prompt people to weigh up the options and potentially look into a family policy covering everyone in the household. This ensures prompt medical treatment in the event it is required and that you avoid lengthy wait times.

 

Savings and Investment

Longer term parents or grandparents might want to put money away on a monthly basis to provide the child with a lump sum in the future. Maybe for their first car, home deposit or further education prospects.

This can be done through a variety of means allowing the guardian total control of the finances.

The impact of compounding interest over the longer term, say when a child turns 18 years old can be phenomenal.

For example, with assumed annual growth rates of 6%:

  • £50 per month after 18 years equals over £22,000!
  • £200 per month contribution for 18 years would equal to over a whopping £80,000 when the child reaches 18.  (Sourced here)

Graph Sourced here

It is also very important to have continued focus on your own financial goals and objectives and ensure your retirement plans are sufficiently funded to ensure you can retire when you want.

 

Whole of Life Insurance – Grandparents

We have recently seen a rise in grandparents who want to be able to provide or leave a legacy to their grandchildren. Most do so in the way of cash gifts, however it can be much more efficient to utilise a Whole of Life Insurance policy which is guaranteed to pay out a specific amount, provided monthly premiums are paid. This can be a good addition to the savings and investments outlined above.

For example:

  • A 65 year old could leave a legacy upon their death of £100,000 for approximately £180 per month.

This could be split amongst a number of grandchildren to assist with house deposits.

I thoroughly recommend any new parents try and carve out some time to speak with a financial planner and ensure with some straightforward steps, that they are setting themselves and their children up for financial success.

 

Your Checklist

 

Disclaimer:

All the above information is provided as information only and any examples used are not indicative of financial advice to address your particular requirements. The information does not constitute any form of advice or recommendation by Melville Independent plc, and is not intended to be relied upon by readers in making any financial decisions.

February 2024

Contact Us

Matthew Irvine

matthew@mi-plc.co.uk

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