Mark Twain once quipped Adam and Eve had many advantages, but the principal one was that they escaped teething. One of the things we cannot escape is the inexorable cost attached to raising a family.
A recent survey* found that new parents and parents-to-be all have similar worries and concerns:
– 37% of parents were surprised at just how difficult being a parent is
– 89% of parents claimed to feel completely unprepared for the challenge
– 70% said the number one challenge were worries about their child’s health and safety while financial pressures and juggling work were also found to be major worries
Up until now, couples with no dependents are often financially independent of each other, with both parties generally financially employed, with separate accounts and other than the mortgage, no real financial worries.
If you are thinking of having children or you have just had your first child but have not thought about the financial issues, now is the time for you both to plan. I’m not talking rotas of who’s doing what, where and when! It is really important that you plan your finances together - and often. My recommendation is that you should sit down and put aside a couple of hours each month. Like undertaking a long distance journey, you will need a road map, among other things, so that you will know where you are going.
The very first issue to address is your household income and expenditure. If expenditure exceeds income, you have two choices, cut costs or earn more. Surplus income will define your ability to borrow and save. Effectively then, there are five areas in financial planning when considering parenthood that you must broach and before that baba has arrived :
You will need a room, maybe not immediately but certainly after three months so that all three of you can catch some sleep. This may require an extension, room conversion, renovation and refurbishment, even a move to a larger home. Income and your cash flow will very much dictate what you can or cannot afford.
2. Baby Stuff
You will need a cot, pram, baby clothes and nappies to start with. Do you buy this from savings, borrow or from your cash flows? Again it is vital to know these costs and how they are going to be met. The child has to sleep somewhere! The day to day annual household budget should also be completed so that you are putting a sum of money each month to meet the additional household bills. For a budget template form, email me at email@example.com
I know a couple who spend € 2,200 every month on their two young children between crèche and Montessori. Once the child goes to national school, would it be worthwhile employing an au-pair? Especially if you are both working – taking a child out of a nice warm cot at 6am in the morning and going out to a freezing cold car to drive to a minder may not be your idea of fun. Sometimes it may not even be worth a spouse’s time working as the care costs may exceed the income but career progression may be important to you too. There’s no advice or judgement here - but it is important to consider all the childcare costs involved. Recent surveys have found the child-minding costs alone in Dublin (the most expensive location) are well over € 1,000 each month!
If you send your child to fee-paying schools, as a general rule of thumb you will need to find an estimated €246,900 from the time the child is born to the time they leave 3rd level education to cover everything. You therefore need to plan this – you could start by saving the Child Benefit (€140 per month per child from the October Budget ’16) into a Regular Saver account – you can save between €100 and € 1,000 for 12 regular months attracting up to a current best rate of 4% - 15 months and 3% - 12 months ) and once a lump sum has accrued, put that amount into a higher yielding deposit account. For more sophisticated investments, you will need proper professional and independent advice. Don’t forget to place your child’s name down for your preferred school. Some leave it too late – there is usually a nominal fee required to do this. Pocket money should also be planned. Two years ago I had my three children in national, secondary and 3rd level education at the same time. Nationally, the average pocket respectively for each level is €10, €20 and €60 per week! You also need to put the few bob by for your child also. When they are 21, they may be additionally grateful to you that you saved for them and are now able to present them with a lump sum that will go towards their first car or property. Ahhh!!!
With the arrival of your first born, you both have extra responsibilities – a new dependent for a start. Life and disability insurance should be considered and even income protection, in case either or both parents are unable to work outside the home. Generally a life policy for a specific term to coincide with the end of your child’s third level education should again be considered. This pays out a lump sum in the event of death and for a couple in their 20’s would be relatively cheap. By comparison and if you were to do an exercise of having to pay someone for the all the chores and minding that a parent does, the life cover premium is very much worth paying. Income protection and/or redundancy cover should also be considered – on repayment protector insurance policies, once the policy is in force three months, you can claim and receive up to 12 months payments until you are back to work or the 12 months elapses.
There are a number of other economising steps you can take in bringing up Junior but at the heart of it all, is planning. Oh and congratulations!
John Lowe is founder and managing director of Providence Finance Services Ltd trading as Money Doctor based in Stillorgan Co Dublin. He is author of The Money Doctor 2016 (Gill & Macmillan), T:+353 1 278 5555, e: firstname.lastname@example.org for seminars or consultations. W: www.moneydoctor.ie. T: @the moneydoc. Facebook Pinterest & Linkedin
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