The eye-watering £96,416 price tag of bringing up a child: Sarah Coles

It’s hardly surprising that after meeting the ever-expanding demands of children, parental financial resilience is in tatters. We’re less likely to have enough cash at the end of the month, enough emergency savings, or enough life insurance than non-parents. We’re also more worried about debt.

Even when you just boil it down to the absolute essentials, couples with kids spend almost a fifth more than those without (£2,266 a month vs £1,923), and life for a single parent is even harder. They spend more than a quarter more on life’s bare necessities than singles without children (£1,428 vs £1,150). It’s no wonder that, at the end of the month, a couple with kids has an average of £227 left after paying the bills, while a couple without children has £382, a single person living alone has £34 and a single parent just £25.

Running so close to the edge tends to mean parents have less in savings too. 79% of couples without children have enough emergency savings to cover at least three months’ worth of essential expenses, which drops to 65% among couples with kids. And it’s not just the immediate future that’s alarming them. They’re also less likely to have enough life insurance in place: 62% of couples without kids have enough cover, compared to only 26% of couples with kids and 8% of single parents. This is likely to be because their need for life insurance rises dramatically after we have children – and either parents don’t realise they have a shortfall, or they’re worried about the cost.

When you’re stuck in the maelstrom of family life, it feels like there’s nothing you can do about any of this. You can’t go without the essentials, so once you’ve traded down to the cheapest version of everything, and cut back wherever you can, you’re stymied. It means it’s worth taking a step back, to look at structural changes you can make to improve your financial resilience.

It's not going to help if you already have mouths to feed, but if you’re planning to start a family, you can get yourself onto a sounder footing before you start. When you have a baby, you’ll need to be running on a tighter budget from day one, so it pays to consider starting earlier. As soon as your kids are a glint in your eye, you can cut back significantly. This isn’t just spending less on everyday things, but bigger changes too, like forgoing a holiday or giving up a car.

This will free up some cash, and you can put it to good use. Your first priority may be to pay down expensive short-term debts. Then you should think about putting cash aside for insurance cover, to protect your future children if something was to happen to you. Next, you need to think about your emergency savings. When you have children, your essential expenses will increase, so you need to build your safety net bigger to account for this.

Once the kids are born, childcare is likely to become a major millstone around your neck, so consider compromises. Take the time to explore everything that’s available in your area – the difference between an expensive nursery and a childminder can be significant. You can also take steps to cut the formal care you need to pay for. This can include asking grandparents for help, juggling shifts with your partner, or sharing care with other parents.

Check what help the government will offer too, because both tax credit and universal credit have childcare allowances. You can also get up to 30 hours of free childcare when your children is aged 3-4. The rules will eventually change to bring more free childcare to much younger children. Today’s babies will benefit from the change that means from April 2024, working parents of two-year-olds can access 15 hours of free childcare. Those who are having kids later will benefit from the fact that from September next year, this will be extended to babies from the age of nine months, and from September 2025, this will be expanded to 30 hours.

In the interim, you can take advantage of tax-free childcare. If you have children under the age of 12, you can put money into the tax-free childcare account, and for every £8 you pay in, the government will add another £2. You can get up to £500 every three months – up to a total of £2,000 for each child. It’s doubled for children with disabilities. You can spend it on all sorts of approved care – from childminders to nurseries, nannies, after school care and holiday clubs. To qualify, you need to be working and earning at least the equivalent of minimum wage for 16 hours a week and both parents need to earn less than £100,000.

If your children are older, and are already costing you a small fortune, it’s harder to free up cash. For those on an incredibly tight budget, making difficult decisions is already part of everyday life. For those on larger incomes, who still spend on luxuries for their children, don’t be afraid to keep them to an absolute minimum. One option for older children is to give them a bigger allowance. It seems counter-intuitive, but this allows them to prioritise the luxuries they really value, and consider whether they need a part-time job to boost their income.

Once you’re spending less on the latest childhood must-haves, it gives you the opportunity to spend something on those things you actually must have. This includes life insurance, and possibly income protection, which will provide cash for you and your family if you are unable to work for a period. Amidst all this, you can’t afford to neglect your own needs. If you put your savings and long-term investments on hold while your children are at home, you’ll have an enormous amount of ground to make up later – particularly when it comes to pensions.

One day, when you’re exhausted from the never-ending schedule of caring and working, you’re going to want the opportunity to put your feet up, and it’s only by keeping one eye on the future that you can afford to do this. Because while children are priceless treasures, you can’t afford them to come at the cost of your financial resilience later in life too.

Inheritance tax on the rise

The government recently revealed that in 2020/21, 27,000 estates were subject to inheritance tax – and paid more than £5.7 billion. With each passing year, the frozen allowances mean more of us face the risk of leaving a tax bill behind for our loved ones, and forecasts reveal there are some eye-watering costs on the way. By 2022/23 it estimates the tax bill will have hit an incredible £7 billion.

The good news is that the vast majority of people won’t face this tax at all. However, it’s worth doing the calculations to check. If you’re married or in a civil partnership, you each have an allowance of £325,000, plus £175,000 to set against the house you live in – if you give it to children or grandchildren. On the first death, you can leave everything to one another tax-free – including your allowances. It means that on the second death, you could have tax free allowances of £1 million. If this will comfortably cover your estate, you can relax. However, if you’re set to leave more than this, it’s worth considering some inheritance tax planning in the years to come.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHeadline Money Expert of the YearHargreaves Lansdown