Babies are small, cute and very expensive. They are also irreversible- you can’t return them to the baby store when they cost more than expected. So, how do you financially plan for a baby to join your family?
A baby adds an extra $15,000 to the household expenses in the first year. For every year after that, they cost $12,000 (each! So two kids = $24,000). Can you really afford to have a child? Can you plan for this? And is there any way you can save money? We have a simple guide on how to financially prepare for your child’s impending arrival (we can’t prepare you psychologically though!).
Prospective parents often under-budget for their baby, often by as much as $750 a month. The couple forget a new baby is not just increased expenses, but decreased income. Many parents return to work earlier than intended to try and offset the financial pressure. Plan now to avoid anxiety later. You’ll be tired and stressed enough without worries about money.
Assess your current lifestyle and prepare a simple budget. Write down all your sources of income and then factor in the possibility of decreased income as one parent stays home to look after the baby. Add this up to get your total household income.
Now, write down all your expenses including rent/ mortgage, loan or debt repayments, as well as general household expenses such as phone, power, food, travel/ vehicle costs. medical insurance and entertainment. Add these up to find your total expenses.
Deduct the expenses figure from the income figure and you have a number that shows the ‘spare’ money you have… or the shortfall. If you have a shortfall, you need to do some planning. How can you cut back on expenses? Do you get rid of Netflix? Can you move somewhere with cheaper rent?
It’s recommended that you have between three to six months’ worth of living expenses stashed as savings. This covers you for the unexpected expenses – like a car breakdown or if you have to buy a new fridge. If you don’t have a savings account, start one now.
Both parents should be making full use of KiwiSaver. If you save the minimum amount of 3% on your $38,000 salary, you are saving enough to ensure you receive the $500 government KiwiSaver contribution each year. If nothing else, you should aim for this. While this can only be accessed for a first-time house purchase or extreme financial hardship, this is an important part of planning for your future.
Extra upcoming expenses
Do you have health insurance or life insurance? Have you got a will made up? Are you planning to stay in your current house or will you need to move to a house in the suburbs to accommodate your growing family? And what about your car? Is it reliable, family-friendly, easy to get a car seat in and out of?
And while we are talking about car seats, have you got everything you need for the baby’s arrival? Typically, there are a huge number of items you will need to purchase for when the baby arrives. Breastfeeding equipment and then a high chair. Nappies, creams, wipes and a change table are all must-haves. A cot with mattress, sheets and blankets and a portacot is important too. Car seat, carry pack or baby wrap and a stroller will be needed for when you head out and about. This list doesn’t even include clothing- of which the baby may only wear for one or two months until it gets too small!
The good news is that a lot of those items can be purchased cheap second hand and usually in good condition. Family and friends with similar family scenarios will have clothes they need to get rid of, and the baby shower is a good source of useful gifts (you can set up a registry to help people contribute to what you need, saving them the uncertainty of what to by).
What about working?
While the mother will likely take at least three months off, is it intended that one of the caregivers will stay off home with the baby for longer? There are excellent paid parental leave options in New Zealand but for most, it still represents a drop in income. Even if you both work, unless you are blessed with friends or family willing to look after your child, there is the cost of childcare to consider. There is a raft of governmental financial support options for new parents including parental leave, tax credits, working for families, best start, free healthcare for children under 13 years old, and if you’re on a low income, there are more subsidies and financial assistance offered.
So if you are planning on having a baby:
- Start planning and saving now
- Do an honest budget, factoring in reduced income
- Research the allowances and grants available to you from the government
- Buy as much baby gear as a possible second hand or get them free from family and friends
To find out more about Wedding finances, download our FREE Guide today.