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

Having a baby can be an expensive time for new parents. Planning ahead is key to ensuring that money is the least of their worries

Expecting a baby and planning maternity or parental leave is an exciting time, but it can have a huge and sometimes unexpected affect on family finances, particularly now during the cost-of-living crisis.

Financial wellbeing and retirement specialist WEALTH at work gives 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 will change and should 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. 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, they need 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 employee’s average weekly earnings (before tax) for the first six 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 (eg monthly or weekly) and tax and national insurance is deducted.

Employees are eligible if they earn on average at least £120 a week. 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 for one-off expenses for such items as baby cots, buggies and car seats. Borrowing or buying from family or friends is a great way to reduce the cost.

3. Statutory shared parental leave

Parental leave allows parents to share time off after having a baby. Eligible couples 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 year old. If an employee plans to share paternity leave, the mother (or primary parent for adoption/surrogacy) will need to end maternity leave (adoption/surrogacy leave) 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 while on parental leave.

They must ensure they register for child benefits as they can be worth £1,133.60 per year for a first child and £751.40 per year for further children. But if either the employee or their partner earns more than £50,000, they must repay 1% of child benefit for every £100 over that limit.

If either earn more £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 their state pensions.

5. Returning to work

Keeping in touch work days may include training, offsite/team meetings, or meetings to discuss returning to work, for which the employee would receive full pay. On returning to work, employees are entitled to return to the job in which they were employed. Any changes to hours or working days should be agreed on an individual basis.

For employees hoping to cut their hours on return, they should make sure that they understand the impact on their net income.

Jonathan Watts-Lay, director of WEALTH at work, says: “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 while 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.”