Guide to family finances - Times Money Mentor (2024)

Juggling the challenges of raising children may not leave you much time to manage the family finances.

Regularly tweaking the family budget is a good idea to ensure your finances change to reflect your circ*mstances and your long term plans stay on track.

In this guide, we will cover:

What help can I get with childcare costs?
What is the best family budgeting app?
What are the best savings options for my children?

What do you do when your family is struggling financially?

According to the Child Poverty Action Group, the cost of raising a child, from birth to 18, is:

£160,692 for a family with two parents
£193,801 for a single parent

Possibly the most expensive time is before they start school but there is help available, so make sure you are claiming all the support that you are entitled to.

If you choose to return to work during the early years, then brace yourself for the childcare bills.

The average cost of full-time childcare in the UK is around £263 a week for a child under two, according to MoneyHelper. In London the figure jumps to £303.

What help can I get with childcare costs?

Tax-free childcare offers a £2 top-up for every £8 spent, up to a maximum of £2,000 per child each year, or £4,000 per disabled child each year.

So, if you have one child, and you pay in £8,000 into your childcare account, the government will add £2,000 for the family budget.

If you are on benefits or your child has special needs, you can claim free childcare when they are two. Everyone else must wait until their child turns three.

In England you then get up to 15 or 30 free hours of childcare a week at registered providers until they start school.

You can check what help you could get with childcare costs with the government’s childcare calculator.

Tips to help you navigate the early years

As an employee you have a legal right to ask for flexible working
Workplace nurseries offer free or subsidised childcare and count as a tax-free perk
A grandparent or other relative who is caring for your child while you work can apply for National Insurance credits that contribute to their state pension entitlement.
Make a monthly household or family budget and review it regularly. It will show you where you spend money and therefore where can save money. Read our guide to creating a family budget.

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How do you make a family financial plan?

You don’t have to be a financial whizz to draw up a family financial plan but you do need to be disciplined to stick to it. It could be a great way to teach kids about money management:

Work out what money you have coming in – salary, income from other sources such as buy-to-let, investments, and benefits
Take a close look at your spending habits and where your money is going – go over the last three months of outgoings
Split them into essential and non-essential spending habits
Shop around and make sure that you are on the best deals for your bills
Cut debt or credit cards repayments by opting for low-interest rates deals
Make small changes to the way you spend and manage your money – over time they will make a big difference
Set financial family finances goals
Get the whole family on board

What is the best family budget app?

There are a number of great apps to help with household budgeting:

Money Dashboard – All your current, savings and investment accounts in one place, reviews your spending habits, reminds you when to pay bills and enables transfers across accounts
Emma – Connects all your accounts in one place, helping you to avoid going into your overdraft, finds wasteful subscriptions and gives the control over your finances
Cleo – Offers personalised family budget and spending breakdowns, budgeting tips and help with bills

Check out our full guide to the best budgeting apps.

Insurance for the family

No one likes to think about death, but if you were to die you would want to ensure that your children and partner were looked after financially.

Check whether your employer would pay any money to your partner if you died
Make sure you have filled in a nomination form so the money goes to the right person
Think about whether this sum would be enough: would it cover the mortgage payments? All the bills? Food, clothes and holidays?

Even if your family would receive a payout from your work, a belt-and-braces approach is to get life insurance too, to give you extra peace of mind.

What are the main types of insurance to consider?

Level term life insurance – pays a set amount if you die during a specified period
Mortgage decreasing-term life insurance – aims to clear your mortgage. As your debt drops over time, so does the amount it would pay out
Whole of life insurance – this pays out whenever you die, no matter how old

You can take out a single policy or joint one with your partner, which can be cheaper than two.

If one partner dies and the policy is claimed against, the surviving partner needs to take out another policy if they wanted further cover.

What about if I smoke?

If you have a serious medical pre-existing condition, or smoke, then your premiums will be higher.

A 30-year-old non-smoker pays £7.37 a month for a £200,000 pay-out if they die within 25 years
A 30-year old smoker pays £12.86 a month

Vaping counts as smoking – as does a cigar, even once a year at Christmas.

Adding critical illness to your life insurance policy adds another layer of protection.

It pays out if you’re diagnosed with a serious medical condition, which could be vital if you were in hospital and unable to work.

Your monthly payments will be more expensive, and do check the terms and conditions and any exclusions. If you’re aged 50 or over, our over 50s life insurance ratings will help you decide what to opt for.

Write your life insurance in trust to protect the payout from the taxman. This means it will be paid directly to your dependants so it won’t form part of your estate and will escape any inheritance tax liability.

Saving for children

Well done you if you are already depositing money into a savings account for your kids. Not to worry if you haven’t started yet – there are lots of options.

Top savings accounts for children tend to have higher interest rates than adult accounts. So sticking birthday money in one and setting up a monthly standing order of even just £10 will all add up.

Junior ISAs

A junior ISA lets you save and invest tax-free on behalf of a child under 18. There are two types:

Junior cash ISAs
Junior stocks and shares ISAs

Parents, friends and family can all contribute up to a maximum of £9,000 in this tax year (2022-23).

WATCH OUT: Your child gets control of their ISA from 16 years old and can access the funds at 18 when it turns into an adult ISA. This means they can blow the money on whatever they want.

There’s no guarantee, but raising a money-savvy son or daughter will hopefully mean they are not too reckless when they get their junior ISA pot on their 18th birthday.

Child trust funds

Your child may have child trust funds (CTFs), which are similar to junior ISAs. These were opened for children born between September 1, 2002 and January 2, 2011.

If they do have a CTF, consider moving them into a JISA as it will likely be cheaper (if it’s an investment version) or give better interest rates (if it’s a cash version).

Read how Ben Faulkner switched his daughter’s CTF into a junior ISA and saved on fees

Pensions

If you would like to go with a more long-term plan, you could consider a children’s personal pension or a junior self-invested personal pension (SIPP) to kick-start their retirement savings.

Up to £3,600 each tax year can be saved in a junior SIPP.

The government automatically tops up with the equivalent of 20% tax relief, so the total amount that can contributed into the pension is actually £2,880.

Note: Your grown-up kids may prefer to get their hands on the money when they’re struggling to raise a deposit for a home rather than waiting until their fifties.

Read our round-up of the best junior SIPPs here.

Premium bonds

Alternatively, you can invest in Premium Bonds on behalf of children under the age of 16 and be in with a chance to win from £25 up to £1m, tax-free, in its monthly prize draw. Who doesn’t want to be a millionaire?

How to protect your assets

Protecting family finances and wealth requires a plan and it makes sense to start early.

Make a will – make sure it is legal
Set up a power of attorney – a legal document appoints someone else to make decisions on your behalf if you’re unable to, due to illness or accident
Think about inheritance tax planning – you can transfer assets to your spouse or civil partner free of IHT when you die, but when they also die there could be a tax bill for your kids to pay. You may want to give money to the children now
Consider setting up a trust – trustees can then ensure your money is sensibly distributed or earmarked for a particular purpose, such as for university fees
Speak to a professional – Trusts and inheritance planning is complicated so it pays to speak to a financial adviser.

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