Saving for the future while on parental leave

Emma-Lou Montgomery - 18 Jul 19

If you’ve just had or are about to have a baby, you will likely be thinking about the million things that you need to do right now – and money is unlikely to be one of those things.

But it should be. Emma-Lou Montgomery, who works at investment house Fidelity International has created a list of 5 top tips to help you save money when you’re on parental leave:

1. Start budgeting early

Babies can be costly, so as soon as you know that you or your partner are pregnant start thinking about saving. Having one parent off work, either for maternity or shared parental leave, will mean a reduced income so it’s important to have money squirrelled away.

Sit down and work out how long each of you will be off work and how much income you’ll have coming in to pay the household outgoings during this time. By taking the time to properly budget this will mean that more of your savings can go towards long term goals like childcare.

2. Make use of all that is available

As new parents there are plenty of initiatives that you can make use of which will help reduce costs. On the NHS expectant and new mothers are entitled to free dental care and free prescriptions, all you need is an NHS Maternity Exemption Certificate which you can get from your doctor or midwife.

New parents can also claim for child benefit. This is a tax-free payment available to all parents for each child under the age of 16. If you have an annual income over £500,000 you may not qualify but it’s still worth claiming for the benefit as it will mean you still receive National Insurance credits that will qualify you for the state pension.

Looking further ahead, if grandparents will pick up some of the childcare when you go back to work they can apply for National Insurance Credit, which gives  them an additional £230 in their state pension each year.

3. Plan ahead for education costs

When you have just had a baby, it may seem too soon to be thinking about future education costs, but if you plan to send your child to a fee-paying school or hope they’ll eventually go to university, it’s best to get ahead.

Parents can each save up to £20,000 every tax year into their ISA where the money will grow tax-free.  Even if you invest £5,000 a year from the age of 30, and kept doing so for ten years, then with an average return of 5% per annum you could have a pot of £84,278 to spend on your child’s future.[1]

4. Save for your child’s future

Many parents will want to put savings in place for their child, whether that’s to pay higher education costs, buy them their first car or even provide a deposit for their first home.

Fidelity’s research found that if you were to save as little as £70 each month into a Junior ISA from birth they could have a savings pot worth £21,535 by the time they reach 18. If you can afford contributions of £90 a month this equate to £27,766 – enough to cover the cost of university tuition fees.[2]

5. And save for your own

Amidst all of the advice on saving and budgeting for your child it can be difficult to remember to save for your own future as well.

Fidelity’s Financial Power of Women report identified maternity leave as a key moment where the gender pension gap begins to widen. For every two years off work you should save £4.90 a day extra into your pension when you’re back at work to close the pension gap[3].

[1] Fidelity International, August 2018

[2] Fidelity International, March 2018

[3] Fidelity International, May 2019

For more information please visit www.fidelity.co.uk/womenandmoney/

Emma-Lou Montgomery

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