Why you need a budget
While parenting brings a lot of uncertainty, there's one thing you can be sure about: having a baby will impact on your finances.
With your household income set to change throughout pregnancy and once your baby arrives, it’s a good idea to make a budget for the months ahead.
Financial admin might not come high on your priority list once there’s a baby who needs constant attention, so laying the groundwork early will help set you up for the future.
Here we provide some tips on what you need to create a budget and the important costs you need to factor in - now and for the years ahead.
1. Gather important information
Before you start making a budget, collect all the relevant figures to give you an overview of your finances right now, and help you plan for the months to come.
It will be useful to have:
- a few months' worth of bank statements
- recent household bills
- details of any savings and/or pension contributions
- your employer's maternity/paternity/shared parental pay policy – or info on Maternity Allowance
- details of child benefit entitlement.
Find out more: maternity and paternity leave
2. Review your current financial situation
Look at your income over the last three months and work out the average, so you can estimate your earnings in the months until your baby is born.
Calculate your essential outgoings, which might include:
- rent or mortgage payments
- utility bills
- insurance premiums
- council tax
- groceries and toiletries
- travel costs, including season tickets or petrol.
Add these together, and subtract the total from your monthly earnings, for a better view of the disposable income you’ll have during pregnancy.
3. Look for ways to cut back
Consider whether you can make any short-term savings by reducing or cutting out unessential expenses.
A proper examination of your bank statements can be a real eye-opener. All those small but recurring payments – a daily coffee or lunch at work, the unused gym membership or Netflix subscription – can soon add up.
You can also save over the course of a year by reducing household bills. Switching your energy supplier could make a big dent in your annual payments, and it should take less time than it takes a cup of tea to go cold.
Find out more: 50 ways to save money
4. Apply for benefits you’re entitled to
There’s a variety of support available to parents, so make sure you’re claiming everything you can to ease the strain on your budget.
For example, the Sure Start Maternity Grant is a one-off government payment of £500 that can help with the cost of having a child. It's available to new parents that receive certain benefits.
In Scotland you can apply for the Pregnancy and Baby Payment which pays £600 for your first child, and then £300 for any other children.
5. Draw up a monthly budget
Now you have all the information you need, you can create a budget.
Once those one-off expenses and essential outgoings are accounted for, see what you’ll have left at the end of each month.
If there’s anything spare at the end of the month, try putting it into a separate savings account. This pot of cash could be a buffer for any unexpected costs, boost your bank balance during parental leave when your income is lower, or build up funds for your child’s future.
If you do build up savings, make sure the account gives you both good interest and the flexibility you require (for example, one that lets you withdraw money when you need it).
Find out more: how to find the best savings account
6. Revise budget for parental leave
It’s a good idea to revisit your budget at regular intervals or when your circumstances change. In particular, you will need to revise your budget when the time comes to take parental leave.
If you're an employee, you should be entitled to statutory maternity, paternity or parental leave. Your company might also offer additional payment.
Add these payments to any savings that could help cover costs, then divide this amount by the number of months you plan to take off.
Bear in mind that day-to-day expenses are likely to change when you’re not at work. While you might save money on commuting and meals outside the home, your gas and electricity bills will probably increase because you’ll be spending more time indoors.
If you can, look further ahead and also consider your expectations around returning to work: when will this be? Will you go back full-time or part-time? Will your partner’s work routine also change? Answering these questions early will help you create a budget that can support your decisions.
7. Factor in childcare costs
If you or your partner plan to return work after parental leave you will need to consider childcare costs.
Unless you are able to take advantage of free family help, you will need to decide whether you want to use a childminder, nursery, nanny or an au pair.
Luckily there is help for parents to manage these costs, including free childcare for a set amount of hours each week, tax relief on childcare you pay for and tax credits.
8. Plan ahead for a mortgage
While babies are small, they eventually grow - so you may need to move house if you need more room.
However, you could find it difficult to get accepted for a mortgage on a reduced income during maternity, paternity or shared parental leave.
Lenders are not allowed to discriminate against customers because they are pregnant, but you may need to produce more evidence that you can afford a mortgage if you are on or about to go on parental leave when you apply.
Find out more: getting a mortgage on maternity leave.
9. Stay on top of your budget
It’s all well and good setting a budget, but you need to make sure you stick to it.
Be realistic about how you’ll keep track of your money when you have a new baby to look after and find a format that works for you. There are various options, including:
- Budgeting apps, which let you track your spending on your smartphone or tablet as you go. Some are free, such as Money Dashboard, while others have a small monthly fee attached.
- Budget spreadsheet: create your own simple spreadsheet or use a template to keep a record of your incomings and outgoings.
- Personal finance software: a more advanced way of monitoring your budget; letting you upload information from any of your bank accounts, credit cards and investments, to gain a quick overview of your whole financial situation.
Find out more: how to plan an effective budget