Podcast #58: 'Owning' A Baby....The Costs! (Plus Our First 'Hidden Track'!!!)

OK, we were being a bit mischievous in calling it 'owning'.....but if you have one you'll know that the responsibility lies squarely on your shoulders.....so you may as well 'own' the little darling!! We are not just gonna list off the usual baby stuff, as we like to do here we are going to invite you to think about it a little differently! There are stats which say it costs €250k to raise a child. We're gonna bust through that and break it down a bit more practically!

Many of our readers have kids, and indeed a lot do not, yet! In this episode we are hoping to give some bit of insight to readers on what can be expected financially when you are expecting & beyond.....

This episode is a major departure from the last few weeks where we focused on investment rebalancing, investment portfolios and the impact of time on your investment success. So if it doesn't hit the mark for you then please let us know!! Feedback is gold!

Firstly, and as always, we are chuffed that you have checked out our website & podcast. We are on a mission to make financial planning accessible to Ireland's normal folk in their 20s & 30s (millennials!?). We ask for your help to spread the word, share the article with the little icons at the bottom, check out the podcast, and in general just be a huge fan of our little site! Be delighted if you checked out our why.

This episode does not address the costs of trying to conceive and the various medical methods to do that. While this is something which is faced by many many couples, we empathise however we really don't know enough about it here to put together helpful information.

Intro:

So if you are expecting or indeed planning on expecting a wee baby and are wondering how much does it costs to have a child, you are a planful individual! We reckon it is useful to approach this question through 3 different 'trimesters' (like what I did there!?).....the short, medium & the long term.

The short term expenses include everything in the run-up and indeed the first year or so of the child's glorious existence, medium term is from year 1 to year 5, while the long term is everything after that! Let's take a quick look at the main costs of having a baby, on the short term.....

The Short Term:

You don't need us to inform you that there are costs associated with having a baby even before he or she gets here! Here's a broad summary of what you'll be looking at!

Medical Costs: Ranging from €3k to €5k if you decide to use the 'Private' maternity service in your chosen hospital. If you decide to go 'Semi-Private' it will be in the €1k to €2k region, while if you decide to go 'Public' you'll be getting it for all but free. The decision as to which route to go is a very personal one, and in most cases doesn't come down to cost anyway!

There's not too many mammies who would be happy to let a baby arrive home without having all the necessary accouterments! So broadly speaking here's a broad tally of the main bits needed;

Cot/Crib/Changer: €300-€1000

Clothing/Blankets: €200-€500

Buggy/Car Seat ('Travel System'!): €300-€1500

Breast or Bottle Fed: €0- €600

That quick scan (pardon the pun) of the short term costs tells us that you'll need to prepare for spending anywhere in the region of €800 to €8,500, depending on your preferences....and indeed on how many 2nd hand donations you are willing to accept from friends and family (a great source of stuff in fairness!).

Medium Term (1-5 years old):

So baby is home and settled at this stage, and is starting to crawl/walk and give you back-chat! Happy-Days!

As a responsible parent your instincts will likely kick in and make you notice the advertisements and media articles, forcing you to consider such things are making sure you have proper financial protection & provision if 'anything happens' you!

Emergency Fund:

This nugget has been covered umpteen times in fairness. We even covered it way back here in our 3rd blog post. You may already have one in place, but if you don't it can seem a really daunting mountain to climb....to have a stash of cash equivelant to 3-12 months take-home income. So if you are taking home €3,500 per month, you could be aiming to have €10-€40k of a stash! That's no mean feat but the comfort and peace of mind knowing it's there (or at least is being built) is massive. Follow the suggestions here and you should be OK on this front.

You'll Wanna Be Protected:

Again, your instincts will probably drive you to take notice of all the countless ads for Life Insurance. It is our instinct for survival (and for the survival of our 'off-spring) that motivates us to take this stuff in the first place.....so you'll likely feel the twinge to do something here.

The thoughts of not having it and 'something happening' is far worse that the thoughts of paying for this insurance. Or at least it is for 50% of the parent population in Ireland anyway - that's the rough % who have Life Cover in place!

If you are wondering 'how much life cover should I have' then by all means you can check out this bad-boy here for an idea of the level that would be sensible, and indeed for the different types that are available to you.

If you are particularly planful and your instincts are kicking your backside you might even start to wonder should you have some form of illness cover or indeed an income protection. These insurances all cost money, nobody likes paying for them, but generally people love the peace of mind they provide and the fact that they quieten the nagging instincts! This episode on Income Protection and this episode on Specified Illness Cover might help a little.

Child-Care:

If you take a scenario (which is by far the most common) where both parents are back to work within 12 months of baby's arrival then the inevitable cost of child-minding will rear it's ugly head! There are obviously scenarios where grandparents etc mind the child and insist on not taking any money for that. Count yourself fiercely lucky if that's the case!!

A local childminder or indeed creche, depending on where you are in the country will cost you anything from €40 to €60 per day. Might not sound a lot, but tally that, averaged at €50 per day, over the course of a month, if it is 5 days per week, and you are at €1080 per calendar month. €12,000 per year. To earn €12,000 as a higher tax earner you need to earn approx €24,000 Gross.

If you are on €60,000 per year that is not far off half of your yearly Gross salary...or in another way nearly every second day you go to work is so that you can pay Childminding costs! Not exactly inspirational stuff I understand, but it is a fact!

Taking Time Out:

This leads nicely to the next aspect we invite you to consider, in advance of baby's arrival. Will you actually want to go back to work after maternity/paternity leave is over? Will you be able to afford not to?

This is the single biggest aspect we would invite new or prospective parents to consider. Aside from the financial cost of reducing hours or indeed of doing no hours of paid work, there is the far more important and fulfilling (we would argue!) aspect of having extended time with your child in their early years.

If you were to take unpaid leave from work would your financial lives fall to pieces? How would the mortgage or rent get paid? How would all other bills be managed? Have you actually looked at the maths yourself? This is essentially what Financial Planning is all about, looking ahead and figuring our what you want to do with your time, as well as with your money! We saw how much of a dent on your salary that Childminding can have....you would obviously be saving yourself that chunk if you were not working and were doing that yourself!

If your married couple have only one earned income between them, as of January 2018, that household will be able to earn €43,550 before being hit with the higher rate of tax. In essence what this means is that the effective rate of tax on the household income would obviously be less if only 1 person is earning an income, meaning the 'worker' would find they take home more Net Income if the other spouse takes time out.

Taking time out is not obviously a necessity, it is a choice. We invite you to consider if this is a likely choice you want to make, and to plan for it if it is something you aim to do.

Long Term (6 years and beyond!):

Aside from feeding a growing child, and aside from everything above and the usual clothing, social, sport and other expenses the most commonly thought-about is Education. While the expenses of National and Secondary school appear mostly manageable to working parents, it is the looming 3rd level education which causes most parents to squirm!

We have covered it before, the most common ways to prepare for the costs of college fees. Indeed it was such a big subject matter that we had to split it into 2 parts, Part 1 & Part 2!

If you have young kids at this stage you might feel that College fees are a long way away, and you'd be right. Having said that unless you have the money already set aside for it (€11k per year per child) now might be a good time to start figuring out how you are going to pay for it all!

Nonesense:

As much as we love the topics we cover here, and sharing ideas with like-minded people to help them manage their money the idea that you will or won't have kids based on the financial aspects is a little 'off' if you ask us. Yes it is prudent to be prepared and planful but for those of us who are lucky enough to be able to have and care for their own child it is our primal instinct to create and give another being the chance to live a fulfilled and fun-filled life.....money is unlikely to come into that debate....it may, but it will unlikey be the decider! So take all of these articles about the financials of kids with a pinch of salt, take what nuggets you like from them, but please don't let it scare you, you'l be awesome!!

Thanks a mill for reading (and sharing). We'd love you have you join our community.

Paddy Delaney

QFA | RPA | APA | Qualified Coach