Direct Line magazine

A guide to family financial planning

Updated on: 9 March 2021

A couple looking at a document

Having children takes careful financial planning to make sure money doesn’t become a stess for you and your family.

We’ll run through how you could consider your family’s future, confidently take your first steps as a family, and set up plans which will last a lifetime.

Disclaimer: The information in this guide is for general guidance on your rights and is not legal advice.

Introduction to financial planning

If you’re thinking about starting a family, here's some questions you could ask yourself before having a child.

  • Can you afford it? – It’s good to plan ahead, but if you can’t afford the cost of a child you may run into financial troubles in the future.

  • How strong is your relationship? – Are you ready to commit to raising a child with your partner for the next 20 or so years?

  • How's your health? – Pregnancy takes a huge toll on the body. It’s good to speak to your doctor about any underlying health conditions before attempting to get pregnant.

  • Is your home big enough? – Children and their things take up a lot of space, so think about how this will affect your home. Moving to a bigger place will cost money you’ll need to budget for.

Commitments of having a child

It’s fair to say that having a baby will have more impact on your life than anything else you’re likely to face. Are you ready for that responsibility?

When committing to having a baby, parents often need to:

  1. Put the child’s needs first

  2. Make sure they’re safe

  3. Be prepared to put your life on hold when it’s required

  4. Put the financial needs of your child first

Having a baby will change many things in your life, some from the moment your child is born.

  • Sleep – A baby doesn’t enter the world with the same sleeping pattern as its parents. Expect to be up at all hours, day and night, to meet the needs of your offspring. As your baby gets older, sleep will slowly return to something resembling normal.

  • Work – Be prepared to make changes to your work schedule in order to look after a young child. Maternity and paternity leave will give you time with your new-born during the early stages, but more long term plans will depend on your childcare arrangements.

  • Social life – Parents find they can carry on doing the things they enjoy. You’ll just need to plan for childcare in situations where you can’t or don’t want to take your child along.

  • Time – New parents often feel like they have less time in the day. While you'll still get days off from work, you won’t get many days off from being a parent.

  • Control of your life – You’ll make many decisions in your life with your child’s needs coming first. This will include deciding where to eat, where you go on holiday, or the car you buy.

Don’t overlook the impact having a child will have on your life, and be sure you’re ready to make that commitment.

Knowing when you’re ready to have children

This checklist may help you decide if you’re ready to have children.

  • You’re willing to make the sacrifices – We’ve already covered how you’ll have to make them, but are you prepared to?

  • You can take care of yourself – It’s good to be responsible for yourself before you think about being responsible for a child.

  • You have a strong support system – Having children can be hard work, so it’s good to have family and/or friends you can lean on for support when you need it.

  • Whether you truly want a child – You may have doubts, but how large are they compared to your desire to start a family?

  • You might be ready, but is your partner? - If you’re not on the same page it may not be the right time to have kids.

The cost of raising a child in the UK

Many families struggle with the increasing cost of raising a child. According to the 'Cost of a Child in 2020' report, the overall cost of looking after a child up to age 18 (including rent and childcare) is £185,413 for lone parents and £152,747 for couples.

The additional cost of each child, 2020

Couple parents

Total cost over 18 years £140,893.64 £164,599.70 £174,769.24 £165,632.49
Average per year £7,827.42 £9,144.43 £9,709.40 £9,201.81
Average per week £150.11 £175.37 £186.21 £176.47
Excluding rent, childcare and council tax
Total cost over 18 years £67,765.92 £75,455.81 £84,071.21 £78,812.28
Average per year £3,764.77 £4,191.99 £4,670.62 £4,378.46
Average per week £72.20 £80.39 £89.57 £83.97
Lone parent

Total cost over 18 years £194,607.40 £176,219.36 £159,571.17
Average per year £10,811.52 £9,789.96 £8,865.07
Average per week £207.34 £187.75 £170.01
Excluding rent, childcare and council tax
Total cost over 18 years £111,724.41 £83,999.02 £85,590.46
Average per year £6,206.91 £4,666.61 £4,755.03
Average per week £119.04 £89.50 £91.19


There may be times when you’ll need to turn to childcare. There are a number of childcare services available, and each has pros and cons.

Types of childcare include:

  • Registered childminder: Registered childminders have completed courses which allow them to take care of up to six children aged eight or below. Ofsted carries out regular checks to ensure minders are up to standard

Average weekly cost – £118

  • Day nursery: Organised care for under-fives, often with more than one member of staff. 50% of nursery staff must hold the relevant childcare qualifications. You’ll typically find nurseries in rented buildings, though they can operate from a home. Facilities will vary, so it can be worth visiting several before making a decision.

Average weekly cost – £131

  • Part-time nanny: Nannies will deal with your child one-on-one, much like a parent. This personal care comes with a higher price.

Average weekly cost – £250 – £400

  • Au pair: Often a foreign exchange student, the au pair will care for your children in exchange for accommodation, food and a small amount of “pocket money”.

Average weekly cost – £70 - £85

Source: Money Advice Service

If you’re looking for an environment similar to that of a school, a large childminder or nursery is best. For something more intimate, an au pair or nanny might be worth looking at.

Setting family goals and milestones

Setting family-oriented targets can help you to achieve more in the long term and grow together as a unit.

You could aim for a mix of financial and social targets. Some monetary goals could include:

  • Getting out of debt

  • Keeping your emergency fund high at all times

  • Being able to live on less than you earn

  • Saving enough money for major expenses

Non-financial goals can help you achieve more as a family, and could include:

  • Spending as much time together as you can

  • Putting the family ahead of other social events

  • Going on a certain number of days out together a month

  • Staying involved with the community

To help you create your aims, you could set up a checklist to work out whether the goals will be appropriate for your family. Questions to ask might be along the lines of:

  • Do you have a desired result? – You may need to understand exactly what you’re looking to achieve with a goal, and why.

  • Have you considered every step? – Goals aren’t achieved overnight. Do you and the rest of the family understand all the steps to be carried out?

  • Is your aim realistic? – There’s probably not much point setting a goal you don’t think you can achieve. Is what you’re aiming for something you can see the family achieving?

  • How can you break the goal down? - Think about creating another checklist for this part. Break down every milestone or target you want to achieve.

Asking yourself these questions, and ticking off as you go, will help you to work out if your goals are going to be achieved or not.

Create a checklist

You may also need a general checklist to keep track of your family’s progression. This will cover most of the topics we’ve just mentioned.

A checklist could be set up to ensure:

  • Your family goals are being met

  • Your child is financially secure at all times

  • The family feel as much of a collective unit as possible

Keeping a constant track of how things are progressing could go a long way to making sure your family has a strong financial plan in place.

Dealing with debt

It’s very common to be in debt, especially as a young family. Remember that not all debt is bad, but does emphasise the need to manage your money effectively.

Monitoring your expenses

It’s quite easy to lose track of where all your money is going. You may want to stick to a strict budget when in debt, so staying on top of your outgoings is important. You can do this by drawing up a simple spreadsheet on your computer or on paper. Try to include the following sections:

  • Date - the day the expense was paid for

  • Amount - how much money was paid

  • Item - what it is you bought

  • Method - how you paid (by card or cash)

  • Who - which person or organisation the payment was made to

  • Reason - was the purchase a necessity or a luxury item?

  • Notes - additional comments (perhaps if this is a regular purchase or not)

You can note down things like bulk buy food shops as one item. If you’re finding the spreadsheet a little overwhelming you can also put bills on a separate list. Debt repayments can be managed much more simply if you know what’s coming out of your accounts every day of every month, so it’s important to write down everything you spend.

Introducing a family budget

Family budgets are a clever and simple way of sticking to a maximum weekly spend. Here’s an example of how you could set one up.

Step 1: Set your goals – Make sure you have a set of ambitions you can aim towards. These can be short, intermediate or long term. Ideally, they’ll have a financial relevance.

Step 2: Analysing your income and expenses – Keep track of what’s coming in and what’s going out. A simple way of doing this is adding all expenses together and taking that figure away from your income at the end of the month.

Step 3: Work out your necessities – Not everything you buy is a must-have, so you could try to cut back on non-essentials such as takeaways and regular shopping trips for new clothes.

Step 4: Design the budget – Think about planning what can go where when it comes to your money. How much are you willing to invest in specific sections of your finances? What’s the limit when it comes to how much you want to spend a month?

Step 5: Implement – Try putting your new plan into action and see how it works in practice. If you’re ending each month with money left over that’s great. If not, rethink what you can and can’t afford to spend money on.

Step 6: Take seasonal expenses into account – Remember, there will be times of the year when you may be forced to spend more. Christmas is a good example. Be prepared to spend twice the normal amount in December. The ultimate aim is to take the stress out of your family’s finances. It’ll take some planning, but it’s worth it in the long term.

Saving funds for emergencies

Budget properly and you’ll hopefully have money left over to go towards emergency situations. You could choose to make payments into your emergency fund, treating it like a monthly bill.

There are plenty of reasons you might need an emergency fund, including:

  • If you lose your job and still need a way to pay for things

  • Something expensive (such as the boiler or car) breaks down

  • Someone in your family needs urgent medical treatment (if you’re overseas)

  • You’re forced to leave your home for some reason

  • You’re forced to relocate because of your job

Emergency funds aren’t just for horror stories. Sometimes they need to be dipped into because of a positive thing – like a new job.

Saving money to treat your family

In addition to building up an emergency fund, good budgeting can allow you to pay for fun family things. You’ll be able to either use excess money you haven’t spent at the end of the month, or pay into a ‘family fun pot’.

The money in this section of your finances can be used for:

  • Family holidays

  • Family days out

  • Luxury home items, such as a new TV or computer

  • A meal at a nice restaurant

Sometimes we forget a budget doesn’t have to be all about boring expenses. Spending time doing fun things as a family is just as important as making sure your finances are in order. One without the other could be seen as fairly pointless.

Intergenerational planning

Setting up your finances isn’t all about the here and now. While it’s good to have them in order at all times, it can help to look to the future. Intergenerational planning helps you put financial measures in place to benefit your children later in life, and possibly even your future grandchildren.

Arranging life insurance

Life insurance is one of the most important things you can set up for yourself when thinking about the impact it’ll have on your family. Getting this type of cover in place can be important for a number of reasons:

  • 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 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, ensuring your family is not left in financial difficulty.

  • Covering children’s expenses - A life insurance payout can be put towards making sure your kids will be able to afford everything they need in the years to come.

The cost of your life insurance will be calculated on factors such as:

  • Age

  • Hobbies

  • Whether you’re a smoker

  • Health

  • Job

By looking at your income, expenses and debts, it’s possible insurers will be able to work out the level of coverage you’ll need. Once the cover is in place, you’ll rest easy knowing your family should have financial security if the worst happened.

Your estate and children

You may want to leave your estate to your kids when you pass away. Dependent on their age, this will be either an immediate or long-term process.

If a child is aged 18 or over, they’ll instantly be able to access whatever’s been left to them. Children under 18 have to wait until they reach the age of majority, with the money held for them in a safe and secure holding account.

Trusts can also be set up, with these usually helping to prevent inheritance tax having as much of an effect on what’s being passed on. Some systems will allow you to pass on funds to your spouse, with the remainder of those automatically transferred to children upon your partner’s future death.

Planning for retirement

Retirement is the dangling carrot we chase throughout our working lives. You can start thinking about setting up a pension as soon as you begin working. These will come in two different forms.

  • Private pensions – These will either be arranged by your employer or by you. Private pensions are custom-made to match exactly what you’re looking for from a financial perspective. Pay in more and you’ll have a bigger pot of money when you retire.

  • State pensions - The basic State Pension will pay you £134.25 per week on retirement (as of March 2021). This will differ if there are any additional circumstances, such as a low working income or a disability.

You also have the option to pass on the remainder of your pension to someone else after you die, either in regular payments or a lump sum. Inheritance tax may need to be paid.


Expert tips for saving money

We’ve already looked at a few tips to be more careful with your cash, but there are other ways to pinch the odd pound.

Financial mistakes to be aware of

It’s important not to fall into these common financial traps, often easily avoided and able to save you money each month.

  • 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 TV contract, or mobile phone? There might be some channels you can afford to live without, or could you get by with a reduced mobile data plan? Perhaps you’re even being overcharged, and just haven’t had time to sort it out yet. Similarly, it’s best not to allow yourself to be over-insured for cover you don’t need.

  • Using credit cards - People like using this ‘borrowed’ money because it makes them feel they have plenty of time to pay it back. However, doing so could actually cost you a lot more in the long term. It’s best to pay off the balance in full each month, but ensuring you make more than the minimum payment is a good start.

  • Falling into your overdraft - Unexpected costs have the potential to tap into your overdraft. If you go past the limit the bank has set you, you could face penalties or high interest rates on repayment. Contact your bank to discuss increasing your limit to avoid any penalty fees.

  • Not getting what you’re owed - Most people are unaware of the benefits they have access to. A report from the Independent suggests more than £10bn in benefits is unclaimed each year. Make sure you do some research and work out what you’re owed.

Keeping on top of these common mistakes will save you money, giving you a stronger financial future.

Avoiding unnecessary expenses

We all enjoy holidays, coffee and cake, or binging on the latest Netflix series, but be mindful of luxuries you can live without in order to save money. Some of the ways you could be overspending include:

  • Central heating - Do you really need to have the radiators on, or would a jumper have the same result? Sometimes, we put luxury ahead of finance. That’s perfectly fine, so long as you can deal with the additional costs.

  • TV channels - Cancel any channels you don’t use, especially the likes of movies and sports which can be the most expensive. It’s worth talking to your service provider to see how costs can be cut.

  • Memberships - Any membership fees you’re paying which you aren’t making the most of can be cancelled. No longer a gym bunny? Cancel it. Haven’t loaded up Netflix in a few months? End your subscription. Don’t let these services continue to take your money for no reason.

  • Food - Convenience food and snacks are likely a luxury you can live without. Cut out your morning £3 coffee at work and that’s a saving of £15 a week.

  • Eating out - Make eating out at a restaurant a treat, rather than a regular event in your life. Cutting out visits to your local gastropub is a great way to save money.

  • Personal services - From pet grooming to having someone trim your lawn, there are probably many services you can cut back on. If you don’t want to lose these services, try reducing their regularity.

  • Holiday - Think about your wallet when you book your holiday. More money doesn’t always mean a better quality trip. Shop around for the best deals, and consider taking up a last minute offer for even bigger savings.

  • Clothes - You can find stylish clothing without expensive labels.

  • Vehicles - It’s not so much the make or model you need to consider, but rather how you’re paying for it. Leasing can be a more affordable option than paying outright, but it is a longer-term commitment. Work out what’s right for your budget. If you want a new car, consider looking at nearly-new models for big savings.

  • Alcohol and cigarettes - Cutting back on smoking and drinking has the potential to bring the biggest benefit to your wallet. For many this will be a difficult sacrifice to make, so don’t focus on what you’ll be missing, but what you can do with the extra money.

You don’t have to deprive yourself of all luxuries. It might be good to work out which are the least important and think about ways you can cut back.

How to cut your domestic bills

You can’t always shop around for the best deal on your household bills. For example, you can’t change water provider. However, you can take steps to try and make the numbers as small as possible.

  • Don’t use paper bills - You’ll save some money if you do everything online. Paperless billing is cheaper for utility providers. These savings are passed on to the customer.

  • Double up on services from the same provider - Having two services which come from the same provider can save you money. For example, if you have Sky internet, there’s a good chance you’ll be offered a deal on TV services. Be sure to shop around to ensure the package price is the cheapest option.

  • Don’t stay with the same provider forever - Loyalty can be rewarded with cheaper deals, but always shop around when your contract is up for renewal. Energy suppliers are a prime example where jumping to a competitor can save you money.

  • Think about how you’re paying - Direct debit is usually the cheapest way of paying your bills. Other options are available, but watch out for extra charges when using a credit card.

  • Install a water meter - Switching to this type of system should mean you save money. Moneywise reports you can save roughly £56 a year using a water meter. This doesn’t sound like a fortune, but it all helps.

It can be risky to assume your bills are the right or best price. Look around for better deals, and even change providers if you need to. A number of small savings can soon add up to make a big difference.

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