As you probably know by now, we’re expecting a baby in July! As money is our favourite topic, we wanted to understand the financial impact of having a baby!
Aside from the obvious emotional impact of expecting a baby, there are some very significant financial aspects to think about.
We expect most of the population would just accept “it is what it is” and not worry too much about this. They would go with whatever maternity/paternity pay they’re entitled to and sort their finances out after the fact, spending whatever may be left over.
But not us!
Oh no…. I’m somewhat of a spreadsheet addict and have been diving deep into the numbers in order to understand our situation and help in our decision making.
A lot of research has gone into understanding our full situation and what we’re entitled to. Miss Way has a unique work situation which I’ll explain below.
During this process, I’ve found the Government website to be incredibly helpful. All the information you need is available in one place and explained simply.
My spreadsheet was initially created for my own piece of mind, and to show Miss Way the impact Baby Way would have on us both. After finishing this and boring entertaining Miss Way with the detail, she thought it would be a useful thing to share with you all.
Hopefully you find this interesting and it inspires you to come up with similar plans for your own situation!
So, without further ado, here it is:
Mr Way’s Baby Impact Assessment
Welcome!
The context behind the calculations:
This assessment considers the ‘income’ side of our finances.
Spending is not addressed here and will be dealt with separately. We actually think we can absorb the direct costs of having a baby fairly easily within our existing budgets. Trust me; we’ve looked into this comprehensively too!!
When you consider the fact that we’ll be entitled to Child Benefit of £20.70 per week for our first child, we’re relatively comfortable we’ve got the spending side of the equation covered.
Our Situation is Quite Individual
I have a fairly ‘standard’ full time employed job. Miss Way, however, is slightly more complex (don’t get me started!!).
Miss Way is self-employed, but some of her work is paid on a PAYE basis. Because of this, she qualifies for Statutory Maternity Leave/Pay, but only for those parts of her job which are PAYE. This means her maternity pay will be based on earnings of ~£175 per week. This isn’t great, but still works out better than the alternative – Maternity Allowance – which she would receive if she was fully self-employed. Confused yet? Me too….
We’ve made the below assumptions based on our best guess at what we’ll want to do. Obviously having a baby is a pretty big deal and our plans could well change. We’ll just have to wait and see!
The Plan
We considered so many different combinations of making the first year of our Baby’s life work for us. The options are essentially endless, but we settled on the plan below:
- Miss Way plans to work as late in her pregnancy as she is comfortable, fulfilling existing contracts
- Ideally, maternity leave & pay start upon childbirth
- I take my 2 weeks statutory paternity leave, paid at £151.20 per week. There’s potential to take this as holiday instead (i.e. on full pay – wooop!) but we’re being conservative for now
- When we reach September, I go down to a 4-day work week
- From September, Miss Way begins working on that day, making use of her new child-care buddy (that’ll be me)
- Once the 39 weeks of maternity pay are over, continue as above but Miss Way also re-starts one of her PAYE jobs (on a week night so I have Baby Way)
We’ve taken this ‘first year’ assessment from July 2020 (due date) through to September 2021. As Miss Way is a teacher, this takes us up to the start of a new academic year, at which point we can create a new plan.
We don’t feel ready to plan from this stage yet as we aren’t sure how we’ll feel about putting Baby Way in nursery etc.
Finances
The bit you’ve all been waiting for!
To work out the overall impact on our finances, I broke this down into 3 sections.
- Maternity pay received
- Loss of earnings
- Additional income
1. Maternity Pay Received
As mentioned above, Miss Way qualifies for maternity pay through a small proportion of her work. As you can see in the table below, this is made up of various different phases as per the terms of her employment.
The amount of maternity pay, for the first 3 phases, is based on Miss Way’s ‘Normal Full Pay’. This is assessed during a certain period during her pregnancy.
As Miss Way’s timetable varies quite a lot, we’re hoping the assessment period coincides with a particularly busy period, bumping up her average! For now, we took a conservative assessment and based the numbers on this.
| Phase | Type | Amount |
|---|---|---|
| 1 | 4 weeks full pay | £704 |
| 2 | 2 weeks 90% pay | £317 |
| 3 | 12 weeks 50% pay plus SMP (unless this > normal full pay) | £2,112 |
| 4 | 21 weeks SMP | £3,175 |
| Total | £6,308 | |
The total of £6,459 is an improvement on the £5,897 which would have been available if paid full on a self-employed basis (39 weeks @ £151.20). As I mentioned above, this could improve further if Miss Way carries out any more PAYE work during the assessment period.
2. Loss of Earnings
This is the big one!
There are 2 different sections to this table because we will both be losing out on earnings, in comparison to our situation now.
We’ve based Miss Way’s numbers on her currently earning £550 per week during term times. Again, this can vary quite a lot but is a good estimate!
For me, the impact is due to intending to go down to a 4-day week. This would reduce my income by approximately £500 per month.
Another small impact for me is the cost of taking 2 weeks statutory paternity pay. I’ll be paid £151.20 per week, but obviously lose out on my usual salary in this period.
| Which Way? | Type | Amount |
|---|---|---|
| Miss Way | 4 weeks @ £550 (before summer 2020) | £2,200 |
| 38 weeks @ £550 (2020-2021 academic year) | £20,900 | |
| Mr Way | 4-day week (£500 per month) | £6,000 |
| 2 weeks @ £151.20 | £876 | |
| Total | £29,976 | |
As you can see, we’re missing out on quite a lot of money here. Obviously most of it comes from Miss Way’s lost income. However, she does intend to do some work during this first year…..
3. Additional Income
Miss Way can earn additional income during her maternity leave. Because the leave and pay are only based on her PAYE work, she is free to work on a self-employed basis and still receive these benefits.
Obviously we don’t want to plan for her to work too much during this first year, because we’ll be pretty tired and have other things on our minds!!
However, Miss Way fully intends to maintain some work each week, starting in September 2020. This will consist of:
- A couple of private lessons per week (I’ll be home from work in evenings so can take over child-care)
- Keeping In Touch (KIT) days – while you’re on maternity leave, you’re allowed to work 10 KIT days (paid) with the employer you’re receiving the maternity pay from. Miss Way will use these to keep one of her choirs going during her 39 weeks ‘off’
- While I’m off work for the extra day (during term time) Miss Way will work
- Going back to PAYE work after maternity leave and pay end
| Type | Amount |
|---|---|
| Private Lessons | £1,140 |
| KIT Days | £840 |
| 1 Day | £5,700 |
| PAYE After Easter | £504 |
| Total | £8,184 |
As you can see, this has a healthy impact on our finances, to the tune of £8,184. This helps to offset some of the lost earnings summarised above.
Overall Impact
When considering all 3 areas, we’re fairly happy with the impact on our finances in the coming year (and a bit). To be honest, we were expecting worse.
As we still keep our finances separate, we wanted to also understand how this impacted each of us individually.
| Totals | Amount |
|---|---|
| Miss Way Loss | £8,608 |
| Mr Way Loss | £6,876 |
| Family Loss | £15,484 |
As you would expect, Miss Way is impacted the most. We were surprised how close it was though. To even this up a bit, we have a plan.
After Miss Way’s maternity leave/pay ends, I will give her £25 per day I work (4 days per week) during term time. This is essentially covering what childcare would have cost, had we opted for that route.
This seems a fair way to address the balance and is one we’re both comfortable with.
Summary
So that’s the plan!
This is a working document. We’re not sure exactly how Baby Way will impact us yet, but it sure helps to have a pretty solid initial plan. We’re both worriers and having this in place has really helped to convince us we’ll be OK.
As you can probably tell, I’m chuffed with the outcome of this exercise. This just shows, it’s always worth running the numbers!
Savings Rate
On a personal note, I’m really happy that I’ll be able to work 4 days and still save a good percentage of my income. This is really important to me, because I’m a very family-orientated person.
I don’t think I could bare going back to work 5 days a week and missing out on Baby Way’s development. This seems like a good trade-off.
Obviously our savings are going to be significantly impacted during this period. But that’s part of the decision to have kids!
With the current numbers, I should still be able to save around 35-40% so that’s pretty damn good compared to most people! Especially considering this allows for me going down to a 4-day work week.
Fingers crossed 2020 won’t see any huge expenses such as our new car or Africa trip which both hammered our finances in 2019!
If you’ve read my recent post about my work situation, you’ll know that I’m in search of a fairly big promotion in the near future. Should this arrive, it will be another huge boost to our plans.
Obviously I’m keeping quiet about the 4-day plan for now, as I’m sure this would significantly impact my chances for promotion (this is illegal, but try arguing otherwise….). Alternatively, I may look to change jobs but this brings its own issues of course.
Likewise for Miss Way, the outcome is a positive one. She gets to spend a lot of time with Baby Way while also maintaining ties to her work. This is not only good for her longer term career, but also her mental health.