Planning for the Costs of Raising Children
Raising children, especially in a capital city like Sydney, involves significant costs. Projections about these expenses require careful assumptions and planning.
Initial Costs and Income Reduction
The most significant financial impact is often the reduction to a single income. Typically, one parent takes around 12 months of leave. This creates a challenge of navigating expenses with only one household income and potentially increased expenses due to the new baby. It is important to understand your non-negotiable bills and day-to-day expenses. It's prudent to factor in approximately $8,000 to $15,000 for initial baby-related costs. These may include specialist doctor visits, prams, and car seats.
The "First Baby Economy"
Many new parents experience what's referred to as the "first baby economy." This involves a tendency to purchase the "best" of everything. The best car seat, pram, nappy bag, etc. However, attitudes often change with subsequent children.
A member is even starting a side hustle to address this. This is a marketplace for used baby goods, similar to Facebook Marketplace, allowing parents to resell items their children have quickly outgrown.
Long-Term Financial Planning
Beyond the initial 12 months, consider these long-term costs:
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Parental Leave Policy: Understand the parental leave policies for both parents.
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Return to Work: Determine whether the primary caregiver will return to work part-time or full-time.
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Childcare Costs: Acknowledge that childcare, even with rebates, is expensive.
Cash flow is often tight during the first few years of raising a family. However, disposable income often increases when children start attending public school full-time. This is a good time to re-evaluate where the money that was spent on childcare can now be allocated.
Planning for Future Education Costs
Consider future educational expenses, such as private versus public school. The costs, particularly for high school, can be substantial.
Some families establish investment strategies before conceiving to prepare for private school fees. By investing early (pre-baby), a longer investment runway (10-12 years) allows for higher growth strategies in the stock market. This provides a better chance of meeting future school fee obligations without redrawing on the mortgage.
Investing is cumulative, what you learn early is of great benefit.