Top tips to help new parents stay in control of their finances

Expecting a baby and planning maternity or parental leave is an exciting time, but it is also important to consider the financial impact that a new arrival can bring. As the cost of living crisis continues, it is now more important than ever that new parents understand how their finances will be affected and what actions they can take.

WEALTH at work, a leading financial wellbeing and retirement specialist, highlights some top tips to help new parents stay in control of their finances:

1.Budget Planning

Employees taking maternity or parental leave should be aware that their income and expenses are set to change, it is therefore important that they take stock of their finances and revise their budget. It is imperative that they do not put this off until after the baby is born, as understanding their income and outgoings each month will help them understand what they can afford.

Firstly, employees should calculate all possible sources of income. These could include any maternity or paternity pay they are expecting, their partner’s income, any benefits they will receive and any other sources of income that may apply to them.  Next, they should obtain bank statements and credit card bills to find a full list of expenses and include any debt repayments they will be making.  If they have any money left over after they have paid for everything they have a ‘budget surplus’. If spending more money than they’ve got coming in, they have a ‘budget deficit’. For those individuals who have a deficit, it could be a good idea  for them to look at their spending and find any areas where they can cut back. If they have a surplus they should consider saving these funds or ensure any debt-incurring interest is paid off.

Statutory maternity pay (SMP) is 90% of an employees average weekly earnings (before tax) for the first 6 weeks and £156.66 or 90% of their average weekly earnings (whichever is lower) for the following 33 weeks. It is paid in the same way as their wages (e.g. monthly or weekly) and Tax and National Insurance is deducted. Employees are eligible if they earn on average at least £120 a week, give the correct notice, give proof they are pregnant and have worked for their employer continuously for at least 26 weeks continuing into the ‘qualifying week’ – the 15th week before the expected week of childbirth. Many companies offer enhanced maternity pay, so staff should speak to their employer to find out what is available.

2. Plan for one off expenses

After planning a monthly budget, employees should start to plan how they will pay for one off expenses. A new cot can cost anywhere between £70 – £1000, whilst the average cost is £130. The average cost of a new pushchair is £340, however, these can cost over £2,000. The average cost of a car seat is £120, although these can cost up to £500.

To save costs they could find out if family and friends would let them buy or borrow any items? Employees should consider if they have savings to use for these one-off expenses, or will they be able to pay for them from their income? According to Liverpool Victoria, the average cost of raising a child in the first year is £11,498, therefore it’s important to plan ahead. Money Helper has a Baby Cost Calculator to help you find out how much you might need to cover your baby’s expenses.

3. Statutory shared parental leave

Parental leave allows parents to share time off after having a baby. Eligible couples will get up to 39 weeks of shared parental pay. Up to 52 weeks can be taken, but it must be used before the child turns one years old. If an employee is planning to share paternity leave, the mother (or primary parent for adoption/surrogacy) will need to end maternity leave (adoption/surrogacy leave) in order for the other parent to start paid parental leave.

4. Benefits

Employees who were eligible for annual leave and workplace pension contributions will continue to accrue these whilst on parental leave.

They must ensure that they register for child benefits as you can receive £1133.60 per year for your first child, and £751.40 per year for further children. If either the employee or their partner earns over £50,000, they must repay 1% of child benefit for every £100 that annual income exceeds £50,000.

If they or their partner earn over £60,000, they won’t be eligible for child benefit. However, they should still opt to receive entitlements, but not payment, as if they don’t claim they may miss out on National Insurance credit for your state pension, and it will also ensure their child is automatically issued with a National Insurance number before their 16th birthday.

5. Returning to work

Keeping in touch (“KIT”) days may include training, offsite/team meetings, or meetings to discuss returning to work, the employee would receive full pay for these days. The employee should try to agree in advance with their manager when they think these days will be.

On returning to work, employees are entitled to return to the job in which they were employed. Any changes to hours or working days are agreed on an individual basis.

For employees hoping to reduce their hours upon return, they should make sure that they understand the impact on their net income. For example, someone earning £50,000 for 5 days a week would have a monthly net salary of £3,169. If they reduce their days to 4 days per week, their reduced gross salary would be £40,000 and a net monthly salary of £2,602 *

Jonathan Watts-Lay, Director, WEALTH at work, comments; “As with all major life events, whether it be parental leave, buying a house, or retirement, it is important to face up to the reality of the situation as soon as possible, and for individuals to put a plan in place of how they are going to pay for it. Spending time with new family will be much easier for employees if they know where they stand, rather than trying to understand what they can and can’t afford to buy whilst caring for their newborn. The workplace can be a good source of information to help support staff in understanding their financial situation before and during any period of parental leave.”