Disclaimer: The information in this guide is for general guidance on your rights and is not legal advice.
Having children is an exciting time, but it's no secret they can be expensive. Probably more so now than ever. With inflation rising at a record-breaking speed, it's never been so important to plan your family finances.
What is family financial planning?
Having a family is expensive, right? There are endless bills, childcare costs, food shops, days out and clothes, plus the general day-to-day costs of running a home. It all adds up.
Family financial planning is the process of looking at your current finances, decidng what your ideal scenario would be, and working out the steps you can take to get there. There is no set timeframe on when to start this process, it's whenever works for you, but the earlier you start, the sooner you can reach your goal.
How much does having a child cost?
Whilst these costs vary from child to child, the Child Poverty Action Group annually review the average cost of having a child. Their full report can be found here (the report will open in a new window).
We've pulled together a few of their key findings from 2021:
- Average cost for a couple to raise a child from birth to 18 years of age, stands at £160,692.
- Average cost of a lone parent to raise a child from birth to 18 years of age, stands at £193,801.
- 2021 has seen the highest rise in these costs since the Child Poverty Action Group began reporting in 2012.
- 2022 is expected to see an even higher rise in costs.
Let's talk debt
It's not uncommon to be in debt, but often people feel awkward and shy away from the topic. Not all debt is bad, it's just important to notice when debt becomes a sign you need to manage your money a bit better.
With the cost-of-living skyrocketing, it's probably tougher now more than ever to avoid getting into debt. As the price of every essentials increases, it's hard to keep on top of outgoings and manage our budgets. Having a financial plan can help you spot where you're losing money and avoid running up unnecessary debt.
Building a financial plan
Building a plan might seem overwhelming at first, there's a lot to consider. A good place to start is to write a checklist of what's important to you.
This could be:
- Your child is financially secure
- Your debt (if any) is reducing
- Your family is happy
Having a checklist gives you something to track your progress against. It's easy to lose sight of what's important, so a checklist helps remind us of what matters to us and why we have a plan in the first place.
Budgets are a great way to make sure you keep to a set weekly spend.
Here's an example of how you can introduce your own family budget:
- Analyse your income- what is the total monthly household income?
- Household expenses- how many outgoings do you have every month? For example, water, energy, memberships.
- The essentials- what outgoings can you compromise on by reducing or cancelling? Once you have decided what's essential, add these costs together to find out your total outgoings. This will let you know how much you're commited to spend each month.
- Plan- Now you know your outgoings, think about any other ways you could manage your money, such as investments, saving accounts, etc.
- Action- put your new plan into practice. Set yourself a timeframe of how long you will follow this plan before re-evaluating.
- Refelct- nothing in life stays the same, that's why it's important to regularly review your plan and change it if needed.
Spreadsheets can be a useful way to keep track of your budget and see how your plan is working.
Family financial planning doesn't just have to be about the right here and now, it can help with planning for your future, too.
Planning for the future
Planning for retirement
Retirement is the dangling carot we chase throughout our working lives. You can start thinking about setting up a pension as soon as you begin working.
There are two different types of pensions: private and state.
- Private pensions- these will either be arranged by your employer or by you. Private pensions let you pick how much you'd like to pay and set aside for your future. The more you pay, the bigger your pot of money when you retire.
- State pensions- as of 2022, basic State Pension will pay you £141.85 per week after you retire. This figure will differ due to your personal circumstances such as low working income or a disability.
If you die before reaching the end of your pension, the amount remaining can be passed to someone else. This could be either in one lump sum or regular payments. It's possible your loved ones would need to pay inheritance tax on this.
Life insurance is one of the most important things you can set up for yourself when thinking about your family's future.
There are a number of benefits to having life insurance:
- Paying off debts- in the case of a mortgage, a family might need additional funds to keep paying it off. Without this boost from life insurance, there's a chance they may be forced to sell the house.
- Paying the final expenses- funerals aren't cheap, with prices sometimes running into the thousands. The money left by a life insurance policy could help to cover this.
- Replacing a spouse's income- the money from a life insurance policy can go a long way to replacing this lost income.
Your insurance payments can be factored into your monthly budget plan. The cost of a policy is different for everyone as it's often based on your:
To find out more about life insurance, visit our website (the page will open in a new window).
Top tips for saving money
There are lots of ways to cut back on our spending and save money. We've pulled together a few tips on common pitfalls to avoid:
- Paying too much for bills- take a minute to question some of your monthly bills. Do you really need to spend so much on your mobile phone? There might be a way of reducing your plan and costs.
- Using credit cards- whilst credit cards can be good, it's important to be very careful when usiing them as they can actually cost you more in the long term through interest. It's best to pay off the full balance each month to avoid interest.
- Going overdrawn- unexpected costs have the potential to tip into your overdraft. If you go past your overdraft limit, you could face penalties or higher interest rates.
- Not getting what you're owed- sometimes we aren't aware of the benefits available to us throough employers or government schemes. Set aside some time to look into benefits and work out what's available to you.
- Avoid unnecessary expenses- using your financial plan, regularly look at where you can reduce your outgoings. Is there anything this month you don't need, or need less of?
Having a clearer understanding of your financial commitments and monthly outgoings is the first step to managing your finances more effectively. By setting small, achievable goals and getting the right advice, you'll feel more in control of your family's financial future.