Having a baby is a wonderful thing, but be prepared for a heavy financial impact on your lives
This week’s article is inspired by a client of mine, whose wife gave birth to two baby boys last week. Despite being born six weeks premature, both are doing really well. So, what do these boys have to do with financial advice?
Well if we were to rewind around seven 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 type of chat really is a passion killer.
Because there’s no two ways about it: having a child is very expensive.
The average cost in the first year alone, according to research carried out by AA Life Insurance, is €14,532.12. The cost of childcare, maternity and baby clothes, nappies, car seats, prams and more all add up to this staggering amount.
If you are planning on having a baby or are due one in the coming months, you need to address the impact this will have on your finances. For new parents it isn’t something they have experienced in the past but there are steps you can take now, that will lessen the financial stress and shock when your new baby arrives.
Make a budget
Make a monthly budget and factor in your new outgoings. By inserting those extra monthly costs you will be able to see what impact they will have on your monthly cashflow.
By carrying out this exercise, you are giving yourself the information and visibility now, which can help with decisions you may soon have to make. What needs to change? How are you going to finance those changes? Can we survive on one income or two?
How much time can you and your partner afford to take time off work, and what impact would that have on your savings and monthly cash flow? Understanding your monthly outgoings will help you get a better understanding on the impact having a child will have on your bottom line.
Get an emergency fund in place
My second piece of advice is to get an emergency fund in place ASAP. This fund will prove to be invaluable to new parents if unforeseen medical costs, not covered by health insurance occurred, or if the new mother decided to take an extended leave of absence from work at her own expense.
Review your life assurance
You must revisit your life assurance requirements and make sure you have adequate levels of cover in place, in the event of your death. You want to make sure, your new son or daughter is provided for, so please don’t overlook this very important area.
A good rule of thumb when it comes to life cover, is having about 10 times your annual income. And a stay-at-home parent should also have cover in place. Just because they aren’t earning an income doesn’t mean they don’t need cover; they absolutely do. In their absence, the surviving spouse will have to pay for things like child care, transportation, food etc. so it’s important the stay-at-home parent is covered as well.
Review state and employee Benefits
In advance of the birth, you need to familiarise yourself with any state or employee benefits and rights, you are entitled to and can take advantage of.
For example, if you are pregnant and there are certain risks associated with your job or part of it involves working between the hours of midnight and 7am, you may be entitled to health and safety leave from work. You are entitled to paid leave to attend antenatal classes as is your spouse, and you are entitled to reasonable time off work for medical visits before and after the birth.
Find out what your maternity leave entitlement is, how long will it be paid for, how much will you be paid, how long can you take unpaid leave for? If you are a single parent, are you entitled to the one parent family payment?
What benefits will your employer offer? Some offer extra time off, cash gifts, ability to work from home, health insurance cover etc. so worth having another look at your companies’ benefits packages to see what is available for new parents.
Start a savings plan
And finally, do yourself and your child a favour by starting to save for their future college expenses the month after they are born. College is costly, but you can make it more manageable in the future if you save early.
Resolve if you can, to deposit their children’s allowance payment into a dedicated savings account that will be used to fund their future costs if they decide to go to college when they are older.
It may seem a long way off, and you have time on your side, and something you need not to be concerned about right now, but it is.
The longer you delay starting to save for this eventuality, the more it is going to cost you.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at firstname.lastname@example.org or www.harmonics.ie