Many exhausted new mums put their finances on the backburner, but this momentous life change is also an extremely expensive one which calls for careful planning.
There are a whole range of clever money moves mums can make. Here, independent online matching service findaWEALTHMANAGER.com offers its top personal finance tips for Mothers’ Day.
Lee Goggin, co-founder of findaWEALTHMANAGER.com, says:
“We often find that the birth of their first child is what has prompted our users to seek a wealth manager. For mothers and fathers alike, starting a family is a real watershed in how they approach their finances.
“When you have children your financial objectives change completely. Your new priorities need to be reflected in your financial plan, so taking proper advice is vital.”
Ten Top Finance Tips for New Mothers
1. Take out adequate life insurance
Taking out adequate life insurance (or reviewing existing policies) should be a priority. Children are designated as dependents for a reason and sadly none of us are guaranteed to be around as long as they need us.
Family Income Benefit policies are a good option for those with young families as they pay an income to the family of the deceased for the remainder of their policy’s term. A good financial adviser will help you assess the amount of cover you need and can afford.
Extra tip: Many employers offer life insurance/death in service benefits at cheaper rates than individuals can obtain.
2. Write a will
Incredibly, 60% of the UK population are without a will, despite them being the only guarantee that your wishes will be carried out posthumously. Parents need to appoint legal guardians for minor children and executors for the estate, as well as working out how to bequeath their assets.
Your will needs to arrange carefully for the maintenance of surviving children and their eventual receipt of family wealth when they are of age. Trusts are a time-honoured solution. Most wealth managers will have close links to professional trust companies which will be able to protect your children’s financial interests very robustly.
Extra tip: Professional trustees are advisable with large or complex estates held in trust, but in other circumstances family or close friends can serve perfectly well.
3. Pay heed to your personal pension; use all available reliefs
Motherhood often entails career breaks or working part-time, which can have a big impact on your pension provision. It’s crucial to fund a secure retirement in your own right, rather than relying solely on your partner. The sad truth is that the divorce rate is nudging 50% and many financially weaker partners have found themselves in much reduced circumstances as a result.
All married couples, regardless of whether they have children, should take professional advice on how their individual income and capital gains tax allowances can be best used in tandem. Spread pension savings across both your pots to maximise reliefs and if one of you owns a business think about putting shares in both your names. These are just a few of the options a wealth manager can help you explore. Good forward planning could save you thousands over a lifetime.
Extra tip: Even non-workers can obtain basic rate tax relief on personal pension contributions of up to £2,880 a year, meaning that the government will top this up to £3,600.
4. Use the incoming childcare tax break
From 2015 the government is set to introduce a childcare tax break which could be worth up to £2,000 a year per child. This will replace the current childcare voucher system, which has been criticised since many employers don’t offer them and the self-employed can’t apply.
Under the new system working parents will be able to claim a 20% subsidy on childcare costs, up to a maximum of £10,000 per year and assuming an Ofsted endorsed provider is used. To be eligible as a couple, both parents must earn over £50 a week but not more than £150,000 a year each (lone parents are also included).
Extra tip: The scheme still applies to parents who are on maternity/paternity or long-term sickness leave, as long as they qualified before they went on leave. People who are starting a business and so earning nothing initially are also eligible.
5. Consider nanny sharing
With childcare costs running so high, sharing a nanny with another family might work out to be an economical option. The way that you share the nanny’s services has to be carefully managed, however, since as their employer you are responsible for their tax and national insurance.
If the nanny is dividing her time between the two families then you need to agree to split her tax allowance proportionately. If this seems like a headache, then there are payroll companies which can handle this for you.
Extra tip: The proposed childcare tax break will apply to any Ofsted-registered form of childcare, nannies included.
6. Face up to the true cost of education
A solid education will go a long way towards securing your child’s financial wellbeing as an adult, but the total cost of 13 years’ private schooling and then university has soared frighteningly close to a quarter of a million pounds per child. Saving well before your child sees the school gates is essential. Make sure the whole family’s ISA allowances are used each year and consider setting up a Junior ISA for when the child goes to university.
Average private schooling fees of £10,000 a year are a significant burden, not to mention university tuition fees of around £30,000 and living costs during a degree – and don’t forget these figures are only per child. But there are many investment strategies wealth managers can deploy to help you meet these costs. They will also be able to advise you on tax-effective options like trusts.
Extra tip: Many private schools now offer an advance fee option, where the school invests the money and discounts the fees in exchange. This could also confer tax advantages for the wealthy.
7. Start building a nest egg
Most parents will want to be able to give their children a leg-up onto the property ladder, and over a couple of decades even modest savings can compound with interest to become quite a chunky sum. Under the Budget’s ISA reforms, from 1 July the annual contribution limit for Junior ISAs will be raised to £4,000.
As with adult ISAs, funds for children can now be invested in either cash or stocks and equities accounts. While cash might be safer, equities are almost certain to outperform over the 18-year saving period.
Extra tip: Remember that a Junior ISA can’t be accessed until your child turns 18. Also bear in mind that they will get full control of the money once the account becomes an adult ISA.
8. Enlist the grandparents
Grandparents may wish to help with the costs of education or help give your child a nest egg. With so-called bare trusts, grandparents can place assets in trust for your child with the income and capital gains on them taxed at the child’s rate.
People are often surprised to learn that children have tax obligations just the same as adults. But they will pay no tax if the annual allowances for personal income and capital gains (£10,000 and £11,000 for 2014/15 respectively) are not exceeded.
Extra tip: Grandparents should also be aware of the seven year gifting rule, which means that if they give assets to your children and go on to survive seven more years then the gift is free from inheritance tax on their death.
9. View family wealth holistically
There are many tax advantages to be had from looking at family wealth across the generations and pooling assets. Depending on your level of wealth, there are a range of structures which can be used to minimise inheritance and capital gains tax.
One option is to establish a Personal Investment Company to hold the family’s assets. This allows parents and children to get different income from the company through each being allocated a different share class. Establishing the Company offshore could bring further tax benefits.
Extra tip: Another solution is bancassurance, which uses a combination of life assurance and investment management.
10. Don’t ignore your child’s financial education
There is a woeful lack of financial education in schools, which means that it is vital parents take the lead in teaching about money matters. Instilling a healthy attitude towards money has to start early and encouraging children to save a proportion of their pocket money is a great introduction to personal finance.
As children get older you can introduce more complex financial matters, explaining things like interest rates, credit cards, mortgages and investments. The degree of financial education your child will require will depend on your level of wealth and how complicated your family’s affairs are, but the basics need to be covered.
Extra tip: If you have significant wealth and use a wealth manager you will find that most have educational programmes for clients and their children.
findaWEALTHMANAGER.com is the only independent, free online matching service that helps people find the wealth manager best suited to them.
The process involves completing a short online questionnaire, which impartially identifies a shortlist of up to three best-matched wealth managers. findaWEALTHMANAGER.com takes the guesswork out of choosing the firm with the capabilities, service levels, approach and geographical location that offers a client the best match.
findaWEALTHMANAGER.com’s panel of wealth managers covers the entire spectrum of institutions – large and small, traditional and more recently established, independent and bank-owned.