Family Finances: What does marriage and family mean for your finances?
Your personal finances are ever-evolving. At every life stage, what you need in terms of financial products and advice changes. Getting married and having children can be significant moments in your financial life.
The practicalities of getting married and hosting a wedding come with their own financial implications. Then once you have said your ‘I do’s there are further decisions to be made regarding merging household finances, and tax implications.
Similarly, if you decide to expand your family, after you see those two little blue lines on a pregnancy test, you need to consider your maternity or paternity leave packages, childcare options, and the benefits and support available.
But it doesn’t need to be a confusing time. The Motley Fool is here to help and guide you through what to think about if you are about to walk down the aisle or are preparing for the pitter-patter of tiny little feet. We can help point you in the right direction for information, advice and financial products that could potentially make your life that little bit easier.
And remember, while there are commonalities among families, each family is different. And the word ‘family’ itself can mean whatever you want it to mean for you. Your family is your tribe, the people you care about and want to take care of.
That means that the way your family looks and functions may be slightly different than the next, and your needs may be slightly different. What we cover here we hope will be useful to you and many other families, but do bear in mind that this isn’t a mold to fit into. Instead, see it as a menu of options that you can pick and choose from as it fits your situation and your family unit.
Where to start: Getting married
How can you budget and make a plan for your money unless you know what you need to be saving or paying for? You can’t. So let’s break it down and take a look at where and when one typically needs money in the marriage process.
Buying a ring
Traditionally, the first stage of getting married is getting engaged, and most of the time this means buying an engagement ring. Ahead of popping the question, it’s best to work out the budget for the ring, how will it be paid for, who is buying it, and whether the cost will be shared.
Paying for a wedding
Getting married can be as expensive or as cheap as you like, but it’s not free. So, unless a family member has a secret wedding fund, the likelihood is that you will need to work out how to pay for your nuptials.
Questions to ask yourself include: what kind of wedding do you want, in what venue, what is your overall budget, and how will you allocate your budget to different wedding items (dress, food, flowers etc.)? Costs can add up quite quickly, so having a clear idea of what you want to spend, and on what, can help you stick to your budget.
If you do have a budget, do you have savings in place or will you need to take out a loan? Can you use a credit card for smaller items? And do you need wedding insurance to cover yourself in case things go wrong?
Most married couples like to head off on a honeymoon after the wedding. Do you have savings put aside for a break? Or can your guests contribute towards a honeymoon fund? Are there savings accounts or other financial products they can use to contribute towards your special trip away? And, most importantly, where will you go?
Your big day may be over, but your new married life has just begun, and with that come some more financial decisions. As a couple, you will need to decide how you want to merge your finances, unless you already live together and have tackled that issue. For example, will you merge your finances completely, keep them separate, or have a joint account just to cover household costs? For some couples marriage may mean they want to share more of their finances than they did when they were simply cohabiting.
This is something easily forgotten in the whirlwind of a wedding, but you will both need to update your marital status for the financial products you already hold, such as insurance policies and mortgages (if you decide to share the mortgage).
Now that you are married you may qualify for the Marriage Allowance, which allows you to transfer £1,250 of your personal allowance to your spouse. If your spouse earns more than you and is in a different tax bracket, this could then reduce the amount of tax they would be required to pay.
You can also benefit from tax-free gifts, where anything gifted between you and your spouse in your lifetimes is tax-free.
Finally, you could also potentially take advantage of paying less tax on your savings interest if one of you is in a different tax bracket. If one of you is a basic rate tax-payer and the other doesn’t pay tax at all, you can keep your savings in the name of the non tax-payer. Or if one of you was a higher-rate tax-payer and the other a basic rate tax-payer, the same rules could apply.
All things to research and consider now you have a ring on your finger.
Where to start: Having kids
Expanding your family is an exciting time, but it does mean that you will have some additional expenses heading your way. Having a child not only means you have someone who is financially dependent on you, but it could also impact your future earnings if one of you decides to go part-time/not return to work, and there are the extra costs associated with raising children.
Beyond the day-to-day costs of food and clothing, let’s take a look at what you need to think about:
One of the first things to consider in terms of finances when a baby is on the way is how to budget for maternity or paternity leave. In the UK, couples have the option to share parental leave, so this could also be something to consider. Whatever option you choose, you need to calculate what you and/or your spouse will be paid during parental leave and therefore budget accordingly.
One of the largest outgoings for parents in the years before school are childcare costs, so make sure you know what you are going to do and how you are going to pay for it. Consider your childcare options and research whether you can take advantage of any government schemes that could make childcare more affordable for you.
Before- and after-school costs
Once your child starts school, that doesn’t necessarily mean you no longer have any childcare costs to consider. If you need to take advantage of before- or after-school clubs, you will need to budget for this. Additionally, there are more school holiday days that the average employee’s annual leave allowance, so you may well have to look at paying for some sort of childcare outside term time.
Depending on you and your partner’s eligibility and income, you could qualify for Child Benefit from the government. You can receive £20.70 a week for your eldest child, and £13.70 per additional child.
Saving for your child
You may want to set up a regular savings direct debit for your child, or just have somewhere to deposit cheques given to them on birthdays. Either way, you may need to consider either setting up a children’s savings account or a Junior ISA.
Saving for the future
As well as setting up a savings account for your child, you could also need your own savings fund to go towards future costs. Money could be needed for anything from dental care or braces not covered on the NHS, to university tuition fees or even just paying for sports club memberships and regular activities outside school.
Making a will
You now have someone entirely dependent on you, so it’s worth considering what will happen when you are not around. Look to budget for making a will to ensure that your children are looked after in the future.
Much like a will, having life insurance will mean that your children and/or your spouse are looked after even if the worst should happen.
What financial products can be helpful to families?
Thinking about how to save, what to save into or how to borrow money may seem daunting. But a wide range of financial products are available, which, when used in the right circumstances, can help you.
Here are a few you might consider if you are starting to think about marriage and babies:
Saving accounts come in all different forms, so it is worth considering what you are saving towards and how often you would like to access your money.
If you are saving for an engagement ring or a wedding, you could consider something like a regular saver account. This type of account requires you to save a minimum amount each month, so it could be a useful tool to help you hit your target savings.
With weddings, you may need to dip into your savings account now and then to pay different invoices at different times. Something like an easy access savings account could help with this, as such accounts usually don’t have any restrictions on how often you can access your money.
If you are looking to have your guests contribute towards your honeymoon costs, you could consider setting up a separate savings account; then either pay in any cheques given or give the account details to those who want to transfer money in. Then you will know exactly how much you have when booking your break.
With regards to savings account and children, it is often a good idea to set up a savings account for your baby or child. This can either be something like an easy access children’s account, on which you would be named as the trustee, or a Junior ISA in which you can save up to £4,368 tax-free.
If you are just saving for your family’s future, then maybe consider a fixed-rate bond or a notice account. Both of these lock your money away for a set period of time but usually provide a higher rate of interest. If you don’t need to access the money immediately, then such an account could be a good way to earn yourself higher returns on your deposits.
One financial product you could make use of when paying for an event such as a wedding is a personal loan. This type of loan is not secured against any assets (e.g. your home) and is typically a fixed amount of money borrowed over a fixed period of time at a fixed interest rate.
Rates can vary, so it is worth comparing loan products before applying. Whether or not your application will be accepted depends on your credit score and your household income. If you fail to keep up with your loan repayments, it could significantly impact your credit score.
That said, a loan can bridge the gap in finances to pay for something like a wedding. Just make sure that you factor your repayments into your monthly budget. As personal loan terms are usually between one and five years, you may be paying off the loan for the wedding after the event itself, so try to make sure it is the right choice for you before applying.
Credit cards are not just a convenient way to pay, they often offer benefits that can be useful to families at varying stages and needs.
If your cash flow is adversely affected as a result of paying for something like a wedding, then you could consider a 0% purchases card in order to cover some of the costs in the short term. Cards with an interest-free introductory period are a way of putting something on credit while avoiding incurring any interest charges. Just make sure you make your monthly minimum payment and pay the balance off in full before the end of the interest-free period.
As a large proportion of couples have already set up home before they get married, they often ask guests to contribute towards a honeymoon rather than having the more traditional ‘registry list’. One way of making money transfer easy for guests is to get yourself a prepaid card that they can upload funds to. If you go down this route, maybe consider one that also has no foreign transaction fees, as then you can use it abroad without being charged.
Insurance is there to give you peace of mind. If you are committing a significant amount of money to a wedding, it may be worth taking out an insurance policy. Wedding insurance can protect you against wedding vendors who fail to supply, pay for items such as wedding dresses or wedding rings if they are lost or damaged, and cover you in the event that you need to cancel your wedding due to an unexpected illness or extreme weather conditions.
Life insurance is also a key policy when you start a family. It is an insurance contract that pays out a lump sum to your dependents if you die during the term of the contact. The money could help your spouse or children meet any financial commitments you may have had, should you no longer be around.
If you do have a family and dependents, then it may also be worth considering income protection insurance. This can offer some sort of security in the event that you lose your job or become ill.
Where to go for more information
It can be hard to know where to look for information, especially regarding money and tax advice. Both the Money Advice Service and the GOV.UK website offer free advice and cover most of what you need to know in terms of tax, government benefits and money advice.
If you are looking for financial products, then comparison sites are always useful. Blogs focused on personal finance, such as The Motley Fool, are also informative in some of the areas mentioned above.
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