Crucial money tips for freelancers with kids

SPECIAL REPORT

HL Savings & Resilience Barometer July 2022 showed just how much parents are struggling to make ends meet. Where can they get a break?

Parents are less likely to have enough cash left over at the end of the month than non-parents (54% of parental couples vs 66% of couples with no children), new research has found. They’re also less likely to have enough in savings (63% vs 78%) and are more worried about their debts (76% aren’t concerned vs 87%). Freelancers with children with late paying clients, then you could be even worse off at the end of each month, which means making some changes today could make tomorrow a whole lot easier to tackle.

• This time next year, the proportion of parents with enough cash left over at the end of the month will plummet to 8% (20% for non-parents), while for parents with average incomes it will drop to just 1% (4% for non-parents).
• When compared to non-parents at the same income level, parents are less resilient in almost every area. Those with average incomes are roughly half as likely to have enough cash left over at the end of the month (25% vs 52%) or enough in savings (38% v 71%).

Figures from the HL Savings & Resilience Barometer July 2022 showed just how much parents are struggling to make ends meet compared to those without funding dependents during the Cost of Living Crisis.

“Having kids rams a fully-loaded buggy into the delicate heels of our finances, bringing us to our knees,” says Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

“It makes such a dent in parental financial resilience that it’s far harder to stand firm in the face of the onslaught of rising prices,” says Coles.

She continues, “Any parent who limped to the end of the summer holidays, counting the horrible cost, won’t be surprised to know that parents tend to be less resilient across the board than couples without children.

“Just over half of them have enough cash left at the end of the month, compared to two-thirds of those without children. An awful lot of parents have also built up debts that they’re worried about, and which threaten to become unaffordable as interest rates rise.”

How to financially prep the kids before they go to Uni

• In 2019/20, the average combined tuition fee and maintenance loan was £15,400. The average will hit £16,7000 in 2026/27.
• The average debt for students starting last year is expected to be £45,800, and only one in five are expected to pay it all back.
• When the system changes next year, graduates will leave with an average of £43,400 in debt, and 55% are expected to repay it all.

Source: House of Commons Library

“It’s tempting to think that once your child has passed their A-Levels and got into university, the hard parenting work is done,” says Coles, suggesting the life lessons must go on to avoid going into further debt.

“You’ve just graduated from being Mum and Dad, to becoming The Bank of Mum and Dad, and if you’re going to avoid a run on this particular bank over the next few years, with prices rising so alarmingly, it’s worth arming your offspring with all the money tips they need to make the right start in their adult life,” she says.

In an ideal world, parents can drip feed vital lessons about budgeting, planning, borrowing and saving to their children over the years. However, you can’t always do everything, and you still have weeks to get the basics sorted.

Coles says some money lessons are essential, but can feel excruciating for teenagers, especially when they’re fairly certain they know much more about life than you do, so it’s worth mixing sensible planning tips and cost-cutting measures with some words that will appeal – like ‘freebies’, ‘mobile phone’ and ‘Apple’. There are ways to cut costs that incorporate them all.”

7 money basics to get uni kids to do

1. Move money from your maintenance loan out of your account on day one. If you get this loan, you’ll be paid in just three instalments each year, so there’s a real risk of accidental overspending. Some people immediately transfer enough money for bills and rent into a separate account, so they’re never tempted to dip into cash meant for the essentials.
2. Face the boredom of a budget. It may feel like a chore, but take the time to complete a budget planner, so you can plan for everything you need to spend. It’s incredibly difficult to know what costs you will face when you’re starting out, which is where some help from parents can come in handy.
3. Understand your overdraft. It’s worth picking an account with as big a 0% overdraft as possible. However, you need to be really clear what this is for. Don’t put it in the same bracket as your student loan, and don’t think of this as money you can spend on whatever you like. This is for essential purchases if your budgeting goes wrong – and you can never afford to go over your agreed limit. When you graduate, you’ll have to pay it off as quickly as possible or you’ll end up being charged sky-high interest rates – so this money isn’t free forever.
4. Be careful about credit cards. Your bank may well try to sell you one, and the minimum repayments will make it look like an easy way to afford what you want. However, if you’re not paying it off, you’ll be racking up major interest charges, and it all have to be paid back eventually. If you’re not earning, this is going to give you a real mountain to climb.
5. Dodge store cards. They’re horrendously expensive, and even if you sign up to one for a discount, you can easily be tempted to spend more than you can afford on things you don’t need.
6. Take buy-now-pay-later seriously. It might feel like a free way to spread the cost, but it’s debt. If you use it, you need to understand exactly how much you’re borrowing, and the total of all your repayments. You also need to appreciate the consequences of missing payments – which in some cases will go on your credit record. Like with any debt, think before you buy. If you don’t really need it right now, you shouldn’t be borrowing to pay for it.
7. Don’t forget tax. Check your council tax bill: students don’t have to pay, so if you’re a full-time student living with other students, you shouldn’t have to pay any council tax at all. If you’re working, make sure you’re paying the right income tax too. If you’re earning less than £12,570 a year, you shouldn’t be paying it, so check your payslip.

Ten ways to cut your costs as prices rise

1. Make sure you sign up for everything you need, and nothing you don’t. If you’re covering your mobile phone bill, broadband and media packages for the first time, think carefully about what you need. Don’t let the salesperson foist extra services on you, but don’t scrimp either because when it comes to your mobile, going over your allowances is expensive.
2. Get student discounts. Sign up to sites like Unidays and Student Beans for online discounts. Then ask in store and check any website whenever you buy. A huge number of brands offer cheaper deals for students – including Apple, Amazon and Spotify.
3. Consider investing in discount cards. Among the most valuable are the NUS Extra Card and the Young Persons Railcard. Some parents send their kids to university with both, and right now you can buy the railcard with just £10 of Tesco Clubcard Points
4. Take advantage of freebies. One of the best is Microsoft software, which is free for students, but there are lots of online communities dedicated to tracking down free stuff and letting people know about it – from Money Saving Expert to Save the Student, and HotUKDeals.
5. Build cheap or free habits with your friends. Nights out are hugely expensive, so rather than feeling you need to spend in order to see your friends, plan regular evenings in together or free activities.
6. Learn to cook before you go – at least a few dishes. It’s by far the cheapest way to feed yourself.
7. Sign up for supermarket reward cards, which will offer points and some big discounts. When it comes to spending the points, you might need the money off your supermarket shopping, but if you spend with ‘partners’ you can get up to three times as much value.
8. Don’t be wedded to premium brands, and don’t just buy what your parents do. Supermarket own brands and budget ranges are a fraction of the price.
9. Shop for food in the evening – check when the local supermarket puts out the yellow sticker bargains, when prices are slashed to clear.
10. Sign up to toogoodtogo.co.uk, where you can get ‘magic bags’ of food for a fraction of the full price at the end of the day. Use it carefully though. There are plenty of grocery stores on the list which can offer brilliant bargains, but there are also sandwich shops, and it’s still cheaper to make your own.

Savings and life cover: is yours fit for purpose?

Freelancers with children are less likely to have built up savings or pensions, and they’re far less likely to have the right life cover in place for their family – only 30% do compared to 62% of those without children. 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.

Just how you can withstand the cost of kids depends on how much you earn, so HL and Oxford Economics broke it down by income and looked at the middle fifth of earners too. The differences are even more striking.

Parents are roughly half as likely to have enough cash left over at the end of the month (25% vs 52%) or enough in savings (38% vs 71%). Fewer than a fifth have enough life cover and less than a quarter can be confident that their debts will remain affordable.

“As we go through the next year, the picture gets even bleaker for parents,” says Coles. “For the average earner, the proportion with enough in savings will plummet from 64% to 28% and those with enough cash left at the end of the month will drop from 25% to just 1%. For parents on the lowest incomes the position looks incredibly worrying, because none of them will have enough surplus cash, and just 13% will have enough in savings,” she says.

Whether you are a new parent or not, knowing cost-saving tips can make all the difference.

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7 tips for new parents from HL

Try to get into a better financial position first

You’re going to need to draw up a new and tighter budget when the child is born, so why not do it early, and use the cash you free up in order to pay down expensive short-term debts and build up any savings you can.

Make decisions about childcare

Often the biggest challenge in the early years is childcare. In some cases, a parent will want to give up work for a while, but in other cases they would prefer to work, but don’t feel they can afford the cost of childcare. It’s worth considering all the options before making a decision. 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 friends (although the government has strict rules around looking after each other’s children).

See what help is available

Check if the government will offer help too, because both tax credit and universal credit have childcare allowances. Three and four-year-olds are entitled to up to 30 free hours of childcare a week (although in many cases they don’t end up being completely free), and if you’re on a lower income, younger children may get free hours too. If you don’t already use childcare vouchers, you can’t sign up for them, but you can still get tax-free childcare to make your money go further.

Protect your family

Make sure your will is up to date and takes all your children into account – including establishing guardians if something was to happen to both parents. You also need to make sure you have enough life insurance, so they’re financially cared for if you pass away. Check your sick pay too –  what it covers and how long it lasts for. If it’s not very generous, consider income protection, which will provide cash for you and your family if you are unable to work for a period.

Widen your safety net

We should all have a savings safety net of 3-6 months’ worth of essential expenses in an easy access savings account, in case of nasty surprises. When you have children, your essential expenses will increase, so you need to build your net bigger to account for this.

Set up a Junior ISA for gifts

If family and friends want to buy a present to celebrate your child’s birth – or for any subsequent birthday or Christmas – you can ask them to pay into the JISA, and help build up a nest egg for when they turn 18. You can choose between a cash or stocks and shares JISA, but around three-quarters of people end up opting for cash. Parents may worry about investing, because they see it as a risk. However, while investments will go up and down in value in the short term, over an 18-year timescale, share-based investments will offer far more potential for growth than cash.

Don’t neglect your own needs

Children can easily soak up all the cash available, but it’s vital to keep your own needs in mind too. If you put your savings and long-term investments on hold, you’ll have an enormous amount of ground to make up later – particularly when it comes to pensions.

Where one parent works part-time for a longer period, there’s a risk they have a long break from paying into their pension, which can have serious repercussions for their retirement income.

Some parents will choose to make extra contributions into the pension of the person working full time to make up for it, but it’s worth understanding the implications of that – particularly for unmarried parents. It makes sense to consider your household finances in the round, and talk about ways you can free up cash so you can both pay into a pension if possible.