Having a baby is a beautiful, life-changing event. But while parenting can bring a lot of joy, it’s also a huge financial commitment.
There’s recently been some media coverage around Millennials who would like children but can’t afford to start a family. This is unsurprising given the cost of raising a child to adulthood in the UK costs £152,747. This is a frightening number that may leave you wondering how you can financially prepare for having a baby.
To help you with the dilemma, here are some useful tips for getting your finances in shape before the arrival of your new family member.
The cost of having a baby
I would say I have a solid understanding of personal finance, saving and planning (I guess I wouldn’t be running a money blog otherwise!). But when it comes to kids, I don’t have much of an idea of what that looks like financially! All I know is that having children is expensive – especially when living in a high-expense city. But beyond nappies and toys, how else can you financially prepare for a baby?
The recent media coverage made me curious to find out the real cost of having children. And most importantly, how do new parents prepare for it?
To help give some perspective, I asked the parents in the Financial Independence UK Facebook group to share their experiences and tips on how to financially prepare for having a baby. Let’s start by looking at what they classify as the biggest expenses.
Main costs of having a baby
Baby products from clothes and toys to prams and cots come with all types of price tags. Most parents in the group highlighted that they can be as expensive or cheap as you want them to be. Even good quality doesn’t need to cost a fortune:
“The stuff to buy can cost a fortune if you insist on buying the best of everything new. Or can cost next to nothing if you buy second-hand items that were barely used.”
“I managed to get almost all clothes and equipment for a baby second-hand or free from friends, eBay and Facebook marketplace.”
While you can get many baby items cheap or even free, there is one clear winner the parents mention when it comes to baby costs: childcare.
A full-time nursery place in the UK can cost a whopping £269.86 a week that is £14,030 a year. The cost can easily exceed this in places such as London. This can surely be overwhelming, given the national living wage for a full-time worker is around the same amount after taxes and other deductions. A family or support network that can help with childcare can therefore make a big difference.
Further to childcare, housing can be another significant cost to account for: “The main cost that I think people often exclude is housing; the cost of an extra bedroom or two wherever you live.” A bigger house might not be needed during the baby and toddler years. However, it’s an important consideration when they grow or if you are planning to have more than one child. It’s important to consider moving houses in advance if you think you might need more space. This is because you might find it difficult to get accepted for a bigger mortgage on a reduced income during parental leave.
Opportunity cost
Childcare and housing might be the biggest direct monetary costs, but many parents reminded us that there’s one more huge cost related to having a child: opportunity cost. In this case, the opportunity cost would be things like lost earnings or career progression while taking time off. Opportunity cost is something that especially women face as they are more likely to take longer leave to care for a baby.
“The biggest cost can be opportunity cost from lost earnings or forgone promotions.”
“Loss of income is the big cost. I took unpaid maternity leave and went part-time. Career progression becomes harder too.”
“It’s not just about quitting work to save on childcare but how much will that cost in career advancement.”
6 tips on how to finally prepare for a baby
1. Get your financial act together
When planning for a baby, it’s good to have your basic finances in order. Here are a few things to start with:
- Have a money talk with your partner: Navigating finances as a couple is important in any romantic relationship. And this becomes even more crucial when you’re planning to start a family. Make sure you discuss and align the below points with your partner.
- Emergency fund: Secondly, make sure you have an emergency fund. It’s advisable to have enough to cover living expenses for at least 3-6 months.
- Pay off debt: Aim to also cut down any high-interest debt (consumer loans, credit cards etc.). Reduced income and increased costs might make this more difficult once the baby has arrived. Therefore, it’s good to reduce this kind of bad debt in advance if you can.
- Savings: Once you have an emergency fund and have cut down on any expensive debt, it’s good to build some additional savings. A few parents pointed out that having a baby will often end up costing more than expected. So some extra money will always come in handy.
“We just tried to keep as high a savings rate as possible prior to the arrival knowing we could have increased costs to come.”
- Budget to live on one salary: A sudden drop in income is one of the most notable financial implications of having a baby. Therefore, it’s good to prepare in advance. It might be worth trying to live on one partner’s salary even before the baby arrives. Have a look at some baby budget calculators online. These can further help to outline your expected income and expenditure.
“When my Mrs fell pregnant, we worked off the one wage, saving hers to see how we got on.”
2. Maximise your earning potential
Working towards your full earning potential is another way to financially prepare for a baby. This allows you (and your partner) to save more in advance. It will also help you to maximise your parental leave pay. If you are employed and eligible for maternity or paternity pay, the pay is typically calculated based on your salary. So, the more you earn, the more your employer pays for your leave.
3. Check your maternity or paternity policy
Maternity and paternity leave pay can hugely vary depending on the employer. Both you and your partner should investigate what leave you’re entitled to and what your employer will pay you during that time. It’s worth noting that some companies will just pay the legal minimum, i.e. Statutory Maternity Pay. However, some companies offer very generous maternity/paternity pay. Did you know that Netflix allows parents to take off as much time as they want in the first year while being paid their full salary?
Please also note that most companies will offer enhanced maternity/paternity packages only after 1-2 years of service. This can make a significant difference if you’re planning on changing jobs before having a baby. Therefore, make sure you know you know your new employer’s maternity/paternity policy before accepting a job.
4. Consider your living arrangements
When your family grows, you are likely to need more space too. And naturally, more rooms will usually equal higher prices – whether buying or renting. Do you have enough space for a little one? Now is the time to consider whether you need to move house or relocate – don’t forget to factor in moving costs.
Another important consideration when financially preparing for having a baby is the location and its proximity to your support network. As we discovered already, childcare is one of the biggest expenses when raising children. Therefore, it’s worth considering if you can live close to your family or a support network that might help with childcare.
“If you have a good support network, you’ll be surprised how inexpensive children are. My top tip would be to live near people who will help you if you can.”
5. Save on baby items
Buying your baby a whole new wardrobe can be fun but is an expensive way to go about it. This won’t be new information – but babies grow quickly – so chances are you’ll be spending cash on something adorable that will only fit for a couple of months. One of the most common tips from the parents in the Financial Independence UK group was to save money on all baby items. A couple of great ways to do this is to shop around and compare prices as well as buy second-hand. Your family and friends are also likely to gift or hand down lots of baby clothes, toys and other baby products.
“For larger items that we want new (car seats, mattresses, prams, etc.) we make sure to shop around”
“Clothes are almost all free from a Facebook group for twin parents my wife found (just pay postage). We spend maybe £100 per year on new clothes, and we receive quite a lot as gifts.”
“Managed to get almost all clothes and equipment for a baby second hand/free from friends, eBay and Facebook marketplace. Insane how much this stuff costs new – how little it is used for – and how much waste is created. People can’t give almost new stuff away!”
Finally, when your baby grows, it’s a great side hustle idea to resell any items that are no longer needed:
“I inherited a lot of baby clothes from my cousin, bought the bedside crib from the Facebook marketplace, and sold it for 10 pounds less when we were done with it.”
6. Apply for benefits you’re entitled to
There’s a variety of support available to parents, so make sure you’re claiming everything you can to ease the strain on your budget. For example, the Sure Start Maternity Grant is a one-off government payment of £500 that can help with the cost of having a child. It’s available to new parents who receive certain benefits.
You may also be eligible to claim child benefits, child tax credit, tax-free childcare, free prescriptions and NHS dental care.
“The only prep we did was to make sure we were aware of benefits like child benefit and tax-free childcare and that we understood what we were entitled to.”
Are you financially prepared to have a baby?
While all this might make you feel like you’re never going to afford to have children, some of the parents in the group reminded us that parenting is not all about money. Here are a few heart-warming comments from the group:
“I don’t think there’s a right or wrong time to have children. If you focus too much on trying to save before having children, you run the risk of having difficulties/complications having children at a later age. I think a strong relationship between the parents is the most important thing, that strength will be reflected in the happiness of a child more than any amount of money.”
“One thing is for sure though; no amount of money could make me feel as happy as being a dad makes me!”
All in all, planning for a baby financially can set you and your child up for financial success. However, everyone’s financial needs are different – and so are their views on financial success. And while it’s important to have your financial ducks in a row, it’s also important to remember to enjoy the journey!
Comment below if you have further tips on how to financially prepare for a baby!
These are great tips for first time parents. Budgeting is a great tool and is very needed for some families! Thanks for sharing!
This is a great post for budding families. It’s very important to be mentally, and definitely financially prepared for a baby. A lot of people forget the financial side, or don’t give it the weight it deserves.
Those are fantastic tips for new parents! Thanks for the post. Making notes 😉
Such great advice! Thanks for sharing!
These are great tips for the soon to be parent! I love that you talk about opportunity cost because those can be hard to figure out. Thanks for the great tips!