When you’re young, free and single, talk of life insurance and wills seems like stuff for someone else to worry about. But now that you’re starting a family, making sure your little one has a secure future, with or without you, should shift to a much higher priority. Yes, we know money matters are dull and difficult to understand, but with a little know-how and planning, getting your financial house in order is easier than you think, leaving you with peace of mind and possibly even some extra spare cash to splurge on a treat for mum.
Find out what money matters you should be organising…
You might think you have it all sewn up in terms of money coming in and job security. You’re both working part-time, or your parents are doing the childcare, or you don’t need to work. But what if you and your partner couldn’t work or you were too poorly to look after your baby? Health insurance isn’t just about getting care more quickly than you might on the NHS; it also covers living expenses if you are too ill to work. Ed Stuart-Brown, head of protection sales at Friends Provident, explains, “Most people believe these things won’t happen to them. But if they do, by that time it’s too late and you’re uninsurable. The only time to consider this is when you’re healthy.”
Having a baby, says Ed Stuart-Brown, is often a spur for people to get health and life insurance policies, but fewer than 12% of us in the UK have any sort of income protection. “It’s difficult to think about situations where you might need it,” he adds. “And it’s not the sort of thing you wake up and immediately think about.”
- Check if you need insurance: how long will your job pay if you are ill?
- If you do need it, work out how much you can afford each month. Compare policies online (try www.moneysupermarket.com) or visit an independent financial advisor.
- Be honest. Some policies won’t pay if you’ve left out relevant facts.
Making a will
When you’re in a relationship, especially married, everything would go to your partner or spouse if (heaven forbid) you weren’t around any more, right? Not necessarily.
And it’s not a nice thought, but what would happen if both you and your partner died? Do you know how your children would be provided for? Only 38% of parents with children under 18 have made a will, falling to just 8% of those with children under 5. Julie Hutchison, Standard Life’s head of estate planning, says, “It’s so, so important to get a will, or update your existing one. If a parent dies without a will, the children inherit their share of the estate when they reach age 18 (16 in Scotland). In terms of financial responsibility or maturity, not many parents would be enthusiastic about children having access to their whole estate at this age.”
You might assume that your whole estate (everything from your house to savings and belongings) will be inherited by your spouse or civil partner. But this depends on the values involved, says Julie. “If you cohabit and have a child and are not married or in a civil partnership, real difficulties are faced by the surviving parent since there is no automatic entitlement to the estate and post-death claims need to be made, with legal costs.”
- Make a list of your assets and what you want to leave to whom, then decide on your executor(s). These are the people who make sure your will is carried out according to your wishes.
- Find a solicitor (www.lawsociety.org.uk has local firms) to make your will. Or buy a DIY will kit online to do it yourself.
If you can cope with talking wills and health insurance, you’re ready to think about life insurance. Yes, it feels morbid, but at least once it’s done you can get outside and enjoy today! Life insurance policies can be confusing and it’s important to shop around or get impartial advice. There are two main types of policy, whole-of-life and term. Whole-of-life insurance pays out a fixed sum when you die and is more expensive. With term insurance you can choose how long you are covered for, so you can make it fit with your children’s development.
If you’re taking out a life insurance policy, says Ed Stuart-Brown, it’s also important to make sure that any policy you have is written in trust. This means that the money will go to the right person at the right time. If it’s written in trust it doesn’t form part of your estate and goes straight to your partner or children, whoever you have nominated, usually within 24 hours.
- Do your homework. Don’t just take the first policy you’re offered.
- As with health insurance, it’s advisable to see an independent financial advisor before picking a policy. You can also compare life insurance policies online on sites such as www.moneysupermarket.com.
- Make sure you aren’t paying more than you can afford each month.
Savings for the kids
It’s hard to imagine your little bundle of joy asking you for that first driving lesson or for money to go on the school field trip, isn’t it? Of course you’ve got years until then. But it’s still something you should think about. It might come as a surprise in a recession, but last year the average Brit put £776 into a savings account – compared to £329 a year ago. Sounds like a dream? Well, it is to many parents. But the truth is, finances are really important now. The first place to start is with the Child Trust Fund. That’s a grant of either £250 or £500 (for lowest income families) which you invest and your tot can’t access until he or she is 18.
Many parents will opt for cash accounts, as that can seem the safest option. But you could also try an investment fund. This type of fund pools investors’ money together and uses it to buy a mix of investments selected by a fund manager. Alison Steed, editor and co-founder of women’s personal finance website www.mymoneydiva.com says: “While there’s no guarantee that the money will grow during the 18 years before your child can access it, historically investment funds have outperformed cash over that period in most cases. So if you can bear it (and can afford to risk your money not growing) you might ultimately be better off taking that option.”
- If you’ve just had your baby and haven’t got a voucher for your Child Trust Fund, go to www.childtrustfund.gov.uk for more information on how to claim.
- Talk to your bank about setting up an account for your child that you can put as little or as much into as you like. You can also pay in any birthday money.
- Don’t be afraid to ask for a cheque if someone offers to buy you or your child a gift as there’s nothing you really need for your tot at the moment.
- Consider a direct debit on payday into your tot’s account to boost the funds. Even a fiver a month will add up!
Thinking about cash doesn’t have to be all long-term planning, paperwork and policies. Making the most of how you plan your cash every day can leave you more money to play with – and peace of mind. It’s easy not to budget but when you do, even a little bit, the feeling of control can be liberating. “Check everything you can possibly save money on, from cutting the cost of your motor insurance, to not paying over the odds for your broadband, home phone or TV package,” says Alison Steed. “By using comparison services to shop around you can also reduce the cost of motor and home insurance and reduce your credit card interest payments and mortgage payments.
There are so many simple ways you can make little cut-backs. And once your mum mates see you doing it, they’ll want to join in. After all, who doesn’t want to save cash? So next time someone suggests a lunch out, why not bring up the idea of a ‘bring your own bit’ lunch at home? Or look for deals like two-for-one cinema vouchers for girls’ nights out.
- Downgrade your weekly shop.
- Each week, pick a few products you always buy and get the value or own-brand version. If you like it, carry on buying it. Otherwise go back to your favourite and try the same trick with another product the following week.
- Regularly review your utility bills to see if you could be making savings. Read the meter regularly to make sure your payments are accurate.
- Sign up for direct debit to pay your bills – it’ll save you cash and stop you forgetting to pay.
- Create a spreadsheet (ask mates to help if you don’t know how) and make a note of exactly what’s coming in and going out and when.
“As soon as I found out I was pregnant, we applied to borrow £10,000 more on our mortgage (we were in the process of moving it) so we had some extra money. We both have private health insurance and we took out a policy for Ashleigh.”
Anthea Orchard, 32, from Huddersfield, mum to Ashleigh, 3
“When I had Charlie I had a work pension, which I changed so that it would all go to him rather than to my parents. This was fairly easy to sort out. Because I work, money’s not too tight but I watch what I spend now.”
Holly Mason, 22, from Kent, mum to Charlie, 2, and Alexia, 5 weeks