This weeks’ article is inspired by two baby boys, Evan Ross was born on the 14th September at 11.24pm weighing 3lb 6 ounces and Charlie was born 2 mins later weighing 4lb 5 ounces. Born 7 weeks premature, both are doing really well.
So, what has Evan and Charlie got to do with financial advice? Well if we re-wind approximately 7 months ago, and I was to have a discussion with their parents about the financial implications of having children, I can assure you the Barry White CD playing in the background would be turned down if not off altogether. This chat really is a passion killer.
There's no two ways about it: having a child is very expensive. Financial experts say a home is the biggest investment most people will ever make, but they're forgetting about the cost of raising a child, which some research suggest it’s about €150,000 excluding the cost of their education.
Thankfully, most people don't base this decision on financial issues alone, but as with any other decision that will impact your financial situation, it's smart to go into it with your eyes wide open and to be prepared. The changes that accompany adding a new little member to your family can be stressful, but you can reduce the stress greatly by minimizing the financial factor.
Having a baby is one of the most exciting times of your life. Most people will tell you that you can never be fully prepared for the changes that a baby will bring to your life, but one area that you can prepare for is getting your finances in order. When your family grows, you’ll find some of the biggest changes you have to make, is with money. If you have a baby, will someone take time off work and for how long? If your income drops, how will you cover your costs? The sooner you make a plan, the better.
So, below are some of the big money questions for growing families that you need to consider:
How will we handle the family income?
Some new parents decide to share everything. They may take turns taking time off work to be with the new baby. They have a joint account and they share all the bills, even if only one partner has a job. Other parents keep everything separate, or share just a few things.
You also need to consider how you will manage on a reduced income caused by time off for the pregnancy or birth.
Probably the biggest expense you'll incur once the baby is born (excluding a college education) is child care, which can be as big as a mortgage payment. Even when your child is old enough to go to school, you'll have after-school care, summer camps, and other related expenses. So, check out day-care providers well in advance of the birth of your child in order to find one that you feel comfortable with and that you can afford.
Can your family survive on one income?
If you take half or more than a year off work, you will need to adjust to living with a lot less income. On the plus side, some of your living costs will also drop. Here’s a short list of areas where you will likely spend less:
- Childcare
- Taxes
- Transportation costs
- Lunches and work-related social activities
- Clothing
The best way to understand all the changes is to sit down with your partner and create a new family budget. It will be easier to find areas where you can cut your costs to fit your income.
One couple who are clients of mine, had two children under the age of 4 and she hoped to take time off work until their youngest child went to school so what did they do to make it work with a mortgage and one income? Well first they took steps to cut their spending and they did the following:
- To save on bank fees, they closed both of their current accounts and opened just one joint account
- He started to carpool to get to work, so they could now sell their second car and save on insurance, fuel and repairs
- They cut back to getting take aways’ every other week
- He brought his lunch to work once a month
- They planned on taking less costly holidays abroad, by staying closer to home
- She cut her clothing budget because she wouldn’t need new clothes for work
With these changes, they figured they’d be able to pay all their bills. Not only that, they also thought they could start saving to move home. The reason for this was because they knew they’d need to in the next couple of years as their family grew.
Of course I appreciate not everyone wants or can afford to be a one-income family. What feels right to you and your partner will depend on many factors, including your income and the amount of debt or wealth you already have. For many people however, there are ways to make it work.
My last piece of advice is that as you start thinking about having a baby or find out you are pregnant, start a baby fund. Put a set amount into an account each month to cover unexpected expenses because there definitely will be some I can guarantee you that from personal experience.
Bargain hunt for baby equipment and supplies. It's important to buy the best car seat, stroller, etc., to ensure your child's safety, but your baby will quickly outgrow many of the other items you'll buy, and paying full price is often a waste of money. Talk to friends and family or check stores or on-line sites that sell used goods, it could save you a lot of money.