The Financial Earthquake of a Baby

By Paul Garner CFP® Financial Adviser, Novo Wealth

There are at least three times in our lives when we have financial “earthquake moments”. These are much more significant than the little shake that we get from life from time to time. These are moments when we stop and completely reconsider our entire financial well-being. These moments are: when we start a new job, when we buy a new house, and when we start a family. Of these, starting a new family is probably the most profound.

The very much respected co-founder of PBC Expo, Greg Rocke, who sadly passed away last year, used to call the birth of a child a “watershed moment”. He said that this was the moment when “me became we”. He described it as a time when nuclear families redefined themselves and when priorities moved to accommodate the new members of the family.

Without a doubt, the arrival of a new baby often heralds new financial concerns, so we thought a handy checklist may be a valuable tool in assessing how your forthcoming bundle of joy will impact your financial life:

  1. Income:

    In many families, income will decrease as mum takes maternity leave and, hopefully, dad takes paternity leave (if available). The two income family will frequently become a one income family for an extended period of time as one of the parents takes on the role of caregiver for the early formative years. Who will this be?
  2. Primary caregiver vs return to work: 

    Will one of you stay home, both return to work, will you take turns, who earns the higher income/has the best career prospects?  The answers to these questions may be clear cut prior to birth but could all change after the birth and the reality of parenthood seeps in.  If you haven’t experienced it before, minds and attitudes can change so flexibility and an open attitude are important.
  3. Childcare:

    Beyond the first year or two, there will be other key financial decisions that will need to be made. Do you return to work and use childcare or do you continue to have time off from your career?

  4. Career:

    What will extended time off do to your career prospects – is this time for a new beginning?
  5. Retirement savings: 

    As with the above what does an extended time out of the paid work do for your retirement savings.   An increasing topic of conversation is the disparity between male and female retirement savings due to women having extended periods our of paid work for child rearing.
  6. Expenses:

    On the other side of the ledger, there will be increased expenses as well. There are likely to be medical costs associated with the birth. There will be all manner of “infrastructure and gadgetry” that will need to be purchased including cot, stroller, highchair, baby capsule for the car, bedding, baby clothes,… and the list goes on. There will also be the cost of consumables. You will certainly underestimate how many nappies will need to be changed!
  7. Education:

    What about schooling? State schooling or independent school? Then, further down the track, how much does it really cost to feed a teenager?

Financially, thinking all of this through by yourself can be very daunting.  Of course we are only looking at one side of the ledger here, the costs. I am a dad myself and for me, in a cost benefit analysis, the joy and privilege of having my children far exceeds any cost.

Whenever a couple are about to have a baby, I’m sure that they feel as though they are not ready, they are underprepared. I know this was true for me. Ultimately, they seek advice and they talk to their friends and parents and other special people in their lives. They grow into wonderful parents themselves and then their children wonder if they’ll ever meet the same benchmark. Ultimately they do.

Similarly, couples about to have their first baby also wonder about how they going to get through financially. Usually, most people muddle their way through. Once again, they rely heavily on advice from others.

I really enjoy helping people make a financial plan to help them live the way that they want to live their lives. It has been my privilege to work with a number of young families to work out how they can manage their finances to deliver the family life to which they aspire.

This year, I will be attending PBC Expo in Adelaide in April, to help new families plan their finances ahead of the arrival of their first born child. 

 

 

Note: The views and advice expressed on this blog post are those of the author and are not representative of the Pregnancy Babies & Children's Expo.

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