From celebrating their first steps to waving them off to university, raising children can feel wonderful and life-affirming, but also demanding and chaotic. It’s no surprise that for many parents, financial planning can take a bit of a backseat.

The good news is there are a few simple steps you can consider taking to get back on track and feel more in control of your finances. Just a few tweaks here and there could make a big difference to your children’s futures as well as your own.

The tips below are based on what I’ve learnt over the past 20 years as a financial planner and a parent to three fantastic children.

1. Build solid financial foundations

The first step in financial planning is to put solid foundations in place. No-one likes to think about unemployment, illness or death, but life’s unexpected events could derail your plans and have a serious impact on your family’s financial security.

Maintaining emergency savings can give you peace of mind that you’ll be able to pay for things like your boiler or car breaking down without resorting to high-cost debt. For one-off expenses, one rule of thumb is to keep the greater of £2,000 or half a month’s expenses in a bank account. When it comes to an income shock, we generally suggest keeping back 3-6 months’ expenses in an easily accessible savings account.

It’s also worth considering financial protection, such as critical illness cover, income protection or life insurance. These protect you and your family against larger financial shocks, such as a serious illness or death. You can read more about how to prepare for the unexpected in this earlier article.

2. Don’t neglect your own needs and goals

As a parent, it’s only natural to want to put your children first. But as we’re told on aeroplanes, you should put on your own oxygen mask before helping others. This is particularly relevant when it comes to saving for retirement. Putting money towards your kids’ futures at the expense of your pension could prove damaging in the long run.

Our research shows that pausing your pension contributions for just three years could wipe nearly £50,000 off the value of your pension pot at retirement. Our analysis shows that if a 25-year-old earning £27,000 a year before tax made combined (personal and employer) pension contributions of 8% of salary over their career, their pension at age 67 could be worth £610,896. This assumes an annual investment return of 5.5% after charges and that they receive yearly pay rises of 1.5% as well as intermittent salary increases in line with promotions.

However, if they ceased pension contributions at age 35 for three years, their pension could be worth £562,623 at age 67 – that’s £48,273 less. Pausing contributions for only one year could knock almost £16,000 off the future value of their pension pot, while a five-year gap could cost £80,000.

That could mean you don’t enjoy the quality of life in retirement that you were hoping for. What’s more, by prioritising your retirement savings, you might be able to offer more support to your children further down the road. Once you’ve retired, you’ll have a clearer idea of your financial position and how much you can afford to give away.

3. If you can, invest little and often in your kids’ futures

If you are able to put money towards your children’s futures without impacting your pension savings, it could be well worth doing. Investing relatively small amounts of money on a regular basis could grow into a sizeable sum over time, perhaps enabling your child to graduate debt-free or put down a deposit on their first home.

If you can’t afford it straight away, you could consider waiting until your outgoings aren’t as high – for example, once your kids have finished nursery. Our research shows that if you started investing £100 a month from your child’s third birthday, they could have a pot worth just over £37,000 by the time they turn 18, assuming annual investment growth of 5% after charges. If you were able to invest £300 a month, the pot would be worth an impressive £112,262.

Investing £100 per month or £300 per month over 15 years

The chart shows what would happen to monthly investments of £100 and £300 over 15 years, assuming an annual return of 5% after fees. The vertical axis shows amounts from £0 to £120,000 and the horizontal axis shows years from 0 to 15. The green line depicts a £100 monthly investment – this grows to £37,421 after 15 years. The gold line depicts a £300 monthly investment – this grows to £112,262 after 15 years.

Notes: This hypothetical scenario is for illustrative purposes only and doesn’t represent a particular investment or its expected returns. It assumes annual returns of 5%. The chart doesn’t account for taxes and management or platform fees.

Source: Vanguard.

One way to invest for children is through a junior individual savings account (ISA). You can invest up to £9,000 a year into a junior ISA and any interest or gains will be completely tax free. Once the child turns 18, the money inside the junior ISA will be theirs to use as they wish. Only a parent or legal guardian can open a junior ISA, but anyone can contribute – be they grandparents, aunts, uncles or family friends.

4. Don’t dismiss child benefit

Under current rules, you must pay back at least some child benefit when you or your partner’s income exceeds £60,000 in a given tax year. Once income reaches £80,000, you pay the whole lot back. This is known as the ‘high income child benefit charge’1. These thresholds increased from £50,000 and £60,000, respectively, in April 2024.

You might be tempted to opt out of child benefit payments once your salary hits £80,000, but it’s important to note that the charge is based on your taxable income, not your salary. If you pay into a pension, this will effectively lower your taxable income, thereby reducing or even eliminating the charge.

So, before you opt out of child benefit payments, think about what your taxable income is likely to be this year and whether it might fluctuate in future years.

5. Plan your finances as a couple

If you have a partner, it usually makes sense to plan your finances together. You’ll likely share some common financial goals – whether that’s saving for your children’s university education or your joint retirement – so it’s a good idea to talk about how to realise those goals together.

What’s more, planning your finances as a couple tends to be more tax efficient than going it alone. That’s because you can effectively double up on your allowances, including the £20,000 ISA allowance and the £60,000 pension annual allowance2.

Spouses and civil partners can transfer savings and investments from one partner to the other without paying tax. This might come in handy if one partner is a higher-rate taxpayer and the other is a basic-rate taxpayer. By transferring certain assets into the basic-rate taxpayer’s name, you could benefit from a lower rate of tax on income and capital gains.

It might seem complicated – and we’d suggest speaking to a financial adviser if you’re unsure – but the less tax you pay, the more money you’ll be able to put towards your family’s future


You can find out more about the high income child benefit charge on the government’s website.

The pension annual allowance is the maximum amount you can save into pensions each year without paying a tax charge. It is currently £60,000, but your annual allowance might be lower if you have a high income or you’ve already flexibly accessed your pension pot. To work out if you have a reduced (tapered) annual allowance, see HMRC’s website.
 

Junior ISA

Learn more about investing for children.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.

The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.

Important information

Vanguard Asset Management Limited only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.

This article is designed for use by, and is directed only at persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.

The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on it when making any investment decisions.The information contained herein is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

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