Three nappy changes, two feeds, an overwhelming desire to sleep for a week, and it’s only half-six… time to get up for work.
Looking after your new baby is a full-time occupation; you’ve entered a beautiful new world of nighttime feeds and nappy rash, new routines and nodding off at work. With so much to do to meet baby’s daily needs, how on earth do you find time to think about her future?
Here are five baby steps you can take right now help your new child enjoy a bright financial future.
Make a Will
Okay, it’s not much fun contemplating your mortality, but using a Will to provide for your children if you’re not around is an essential way to safeguard their future. Dying without a Will adds delay and uncertainty to the process of tying things up, and the law will decide who gets what - which won’t always reflect your wishes for your children. Once it’s done, you can file it way and, with it, all the thoughts of the Grim Reaper. Find out more here*.
Appoint a guardian for your children
It’s vital to ensure your children are looked after if you and your partner aren’t there to do so yourselves. Use your Will to appoint a legal guardian. Then you’ve got someone you know and trust to look after your children until they’re 18.
You need to get someone on board who’s willing to take on the task and who you’re confident will be up to the job. Make sure you’ve discussed it with them and they’re happy to be a guardian. It’s worth getting your children involved too: ultimately it’s your call who will be best to step into your shoes, but your kids may want a say.
Use tax-efficient savings to build up a pot for the children
Okay – deep breath. There’s a quite a bit here, but it’s all good stuff. Have a quick whizz through our ideas (hopefully they’ll give you some food for thought, not indigestion).
If you can find the time and money, you can do quite a bit to give your children a nest egg of their own for later life (and make sure they’re not knocking on your door for financial help!).
- Open an ISA. You can put up to £4,080 (tax-year 2016-17) into a Junior ISA for each of your children. You can choose cash or stocks and shares, or a mixture of both. Any investment growth is tax-free.
Quick tip: check out if you’ve already got a Child Trust Fund (CTF) for your children. You can’t have both – but you can always move your child’s savings from the CTF into a Junior ISA (which does increase the risk of losing money, including the original investment, particularly if you choose a stocks and shares ISA). Check the market and decide what’s best.
- Premium bonds. You can put between £100 and £50,000 into premium bonds for your children. A monthly draw decides whether they earn any interest –which is tax-free. Find out how to apply through nsandi.com*
- Child savings accounts and bonds. You could put money into a child savings account. Interest will be tax-free up to your child’s personal tax allowance. Bear in mind though that with interest rates so low at the moment, earnings are unlikely to be great, and there’s a risk the savings will be eroded by inflation.
Choose between an instant access account – the kids will be able to access the money from age 7 – or a cash savings notice account – where interest rates are generally higher than the instant access account and the money is harder to access.
You could also put a lump sum into a fixed-rate bond. This is different from a savings account in that the money is tied down for a set period, so the children can’t access it during that time, but interest rates can be better than savings accounts, and they don’t change over the bond’s lifetime.
- Tax-free cash gifts. There's usually no inheritance tax to pay on small gifts made from your normal income. You can currently give away up to £3,000 worth of tax-free gifts each year. So this could be one for the grandparents to think about. Check out the full story on gov.uk*
- Take a pension out for them. Why not start planning a retirement they’ll love, early doors?! You can set up a child self-invested personal pension for your child from birth.
- Check you’re making full use of your own ISA limit for tax-efficient saving.
- Keep an eye on your weekly outgoings. Cutting out waste means you’ve got more money to save.
- Review/top up your pension: check your retirement plans are on track. By giving yourself peace of mind about your own future, you can focus your energies on safeguarding your children’s.
Check your life insurance and critical illness protection
It makes sense to have some protection in place so your children are financially secure if you’re not around, or too ill to be there for them. Depending on the terms of the plan you choose, a life insurance plan will pay out a cash sum when you die, which can be used to provide for your children’s upbringing and education.
And you can arrange for your life insurance to pay out a cash sum if you get one of the many critical illnesses covered by the plans available, which can go towards meeting your children’s financial needs if you’re unable to provide for them.
Keep saving yourself
You might not have a bottomless pit of money to put by for saving, but by putting some time into planning your own future, you’re taking important steps to safeguarding theirs.
Here’s a few things to think about:
Now take a break
Put your feet up and enjoy that feeling we’re all after: peace of mind. Feel good that you’ve got some things in place to make sure the kids are alright.
We’ve based the information in this article on our understanding of HM Revenue & Customs practice as at September 2016. Tax rules are subject to change in the future and depend on your individual circumstances.
* We’re not responsible for the content of other websites.