This month, your questions have focused on how to ensure you are keeping on top of your finances while juggling motherhood and work.
I’m the main breadwinner and run a small business. How do I plan financially to have a second baby?
How exciting! Great to hear you’re forward planning your finances! Firstly, I’d recommend assessing your family’s overall financial situation; evaluate your current income, expenses, debts, and savings to understand your financial standing. Identify any areas you can reduce expenses or reallocate money to save / accommodate new costs associated with a second child. It’s also worth reviewing existing debts and considering strategies to manage or reduce them before the baby’s arrival, paying off high interest debt first. Creating a comprehensive budget will help you to understand how your monthly cash flow might be impacted by additional expenses associated with a second child. You can also include in your budget any estimated costs for one-off purchases for the child, along with on-going expenses you anticipate. For some people this might mean your budget changes from month to month, but the main thing is having oversight so you can be assured about what you’re spending. There are lots of free budgeting resources out there for you to take advantage of, but if you’re still unsure of where to start then please feel free to reach out! I appreciate it can feel daunting.
Secondly, it’s important to review and update your insurance cover. Particularly income protection policies as you run your own business, to safeguard your income in case of illness or inability to work.
Thirdly, explore both maternity/paternity leave entitlements. As a business owner check your eligibility for Maternity Allowance. In the UK this is currently £184.04 a week or 90% of your average weekly earnings (whichever is less). This can be factored into your budget for when the baby arrives. Also understanding your partner’s leave entitlement may open the opportunity for shared parental leave.
I discuss two other areas for consideration with my clients. The first is planning for if and how your business will operate while you’re on leave – for example is there anyone you can employ temporarily to get projects over the line, so you still have an income or are you planning to quieten down during this period to enjoy it. The second is how much time you’d like to take off with your baby, what will your savings allow, and is there any income you can draw from the business to support this. It’s such a special time that you should consider this ahead of putting a financial plan in place. From there you can put the foundations in place and build a budget to increase your cash reserves.
How do I prepare for motherhood if I want to have kids young? (I’ve just finished my masters)
My first piece of advice to anyone is to put your financial foundations in place. By that I mean build an emergency fund, create a budget and ensure you are protected!
For an emergency fund, aim to have a minimum of three months’ worth of living expenses saved, preferably in a high-interest savings account! This can act as your financial safety net. You can assess how much is feasible for you to save each month by creating a budget, much like I’ve outlined above. If you are considering waiting a few years to start a family, then you may want to also consider investing some residual cash. This can help towards longer term goals, but bear in mind it’s recommended you take a 3–5-year view, so don’t invest money you can’t leave. A good place to start with this is a Stocks and Shares ISA, and you can get ones of these that are managed for you if you prefer.
When it comes to protection, consider life insurance and income protection in the first instance. You don’t need to be middle-aged or have started a family for it to be a worthwhile investment. In fact, the earlier you get covered, the more cost-effective it will be. Plus, many insurance providers allow you to change your policy to account for changes in your circumstances.
When going into employment or moving roles you should understand your maternity rights and benefits. Some employers may offer enhanced maternity benefits, so ask about this. Alternatively check if you’re eligible for Statutory Maternity Pay (SMP). SMP is available for up to 39 weeks. It is 90% of your average weekly earnings (before tax) for the first 6 weeks, and £172.48 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks. If you’re not eligible for SMP, you might qualify for Maternity Allowance, which provides similar financial support. You can build this into an overall budget for when you want to start a family, which might include budgeting for baby-related expenses and subsequent childcare costs.
You may also want to consider your housing situation, and whether renting or buying a home is more suitable for you. In each case, you’ll need to build in these costs to your overall budget, considering how your budget might be impacted if you’re on a reduced income during maternity leave.
I’m coming back to work after having a baby, what should I be considering financially? My finances feel upside down at the moment!
Congratulations on the newest addition to your family! Returning to work can be overwhelming, and sometimes financial planning can feel like the last thing you want to do! It’s great you’re considering this and how you can make your money work harder for you when you return.
To start I’d echo my advice from earlier in the article and suggest you update your budget, take stock of expenditure since your life has changed and factor in any income changes / childcare costs. You may be entitled to child benefit and it’s worth understanding the number of free childcare hours you may also be entitled to, to support with your financial planning.
This will give you that holistic overview of what you have available and what you can potentially save and/or invest, again referring to the advice above. It’s good to consider having a hybrid of cash and investments for the medium to long-term, something a financial planner can help with if needed.
A couple of other things I also advise my clients to consider are their estate planning, and ensuring this is up to date. We know that 50% of adults don’t have a will, and this is a key part of your financial foundations. Also, your personal protection, does this need to be updated or do you want to add family members onto your policy for example. This will help bridge any gaps should the unforeseen arise.
You may also want to consider financial planning for your children. Setting up a Junior Individual Savings Account (JISA) or Junior Self-Invested Personal Pension (SIPP) are great inheritance planning initiatives to start putting in place. The annual allowance for a JISA in the 2024/25 tax year is £9,000, and for a Junior SIPP you can pay in up to £2,880 each tax year and the government will top this up by 20%. There’s no UK Income or Capital Gains Tax to pay on the money in a JISA and payments into a JISA and Junior SIPP could fall outside of your estate for inheritance tax purposes. Remember money paid into these accounts belongs to the child and can’t be returned.
Consider looking at having a one-off financial planning session with a financial planner to help you take stock and start to build out a plan, so it feels less daunting! These are a great alternative to paying for on-going advice. These are suited to those who want to consider different scenarios and look at their financial forecasts without an on-going commitment. Feel free to get in touch if you’d like more information on whether this might be the right approach for you and how I could help.