Babies are expensive. Then they grow into toddlers, who are expensive. And then children, and so on and so forth. The decision to have a child isn't just a major emotional, social and lifestyle commitment, it's a huge financial decision too.
I knew this theoretically before my daughter was born, but as our bank account has dwindled, I have realised just how much I underestimated the expense of having a child. It's not just the big upfront cost either: our weekly expenses are higher and our income is lower.
Despite this, I was shocked when I sat down and did the maths. It turns out our daughter costs my partner and I $32,360 per year. After tax.
Seem preposterous? This is how I figured it out:
I started by comparing our joint income before and after our baby was born. Because I now work part time, our total household post-tax income is $18,900 less that it was before. Then I added in the direct costs (childcare, $8,100/year after the rebate; baby expenses, $1,200/year) and indirect costs ($4,160/year in additional rent to live somewhere bigger, despite the fact we moved 20 km further out of town) of having a baby. I was fairly conservative — even shopping at Aldi, $100 a month for food, formula, baby clothes and nappies is optimistic — yet still, the number was huge.
It turns out our daughter costs my partner and I $32,360 per year.
Of course, every couple is different and makes different choices. How much do you need to save before you have a baby? The difficult answer is that it's different for everyone. But you can get an approximation for how much you'll need by working out your current expenses, work out what your post-baby income will be, what your post-baby expenses will be, and look at the difference. The number might surprise you.
First, Calculate Your Post-Baby Income
How Much Will You Work
While many people return to work full-time while their child is still young, most do not. More mothers are working part-time than ever before. And with fewer hours comes a lower pay packed. The average Australian household with children forgoes $13,000 per year that they would have otherwise earned if they had not had children. If you're planning to return part-time, factor the reduced hours into your post-baby income. Subtract your post-baby income from your pre-baby income, and write that down.
While the government's paid maternity leave scheme is better than nothing, it's still probably less than you earned before having a baby (unless you earned minimum wage, which is what the payment is based on). Additionally, it only goes for 18 weeks. If you're lucky, your employer will supplement it, but if not, you're faced with either going back to work before your baby is 5 months old, or taking unpaid leave. It will be a one-off expense (at least, once per child), but worth considering that extra lump sum when you do your maths.
Then, Calculate Your Post-Baby Expenses
There are two things to think about when you're considering: the one off costs, like a stroller and cot. These are often things you can pick up quite inexpensively second-hand. More significant over time are the cost of recurring expenses: clothes as they grow (though hand-me-downs are a blessing!), baby food, nappies and formula. Later on, it's school shoes and uniforms and books. All these costs depend on a number of factors, such as whether you buy new or second-hand and where you shop. Think about what choices you will make, do your research and budget accordingly.
This is a big one. Not only are you likely to earn less after your baby is born, if you return to work, you'll probably be looking at paying for child care. There is a government rebate that many people qualify for but, at the moment, it only covers up to 50 percent of upfront costs to a maximum of $7,500 per year. That can disappear pretty quickly when long day care costs up to $170 per day. Calculate your out-of-pocket costs per year and add that to the expense column.
True, babies don't take up much room, and your one-bedroom apartment might suffice for the first month or so. But once your little one starts walking and talking, sharing a room with them might not be quite so pleasant. Unless you've already got the larger house, you should expect to pay more for family-friendly accommodation. If like many others, you decide to move somewhere where you can get a bit more for your money, remember to factor in more expensive transportation (longer car trips, more expensive train tickets, etc) to your budget.
The cost of sending your child to a private school for Year 11 and 12 might seem impossibly far in the future when you're gushing over tiny onesies, but your educational choices are part of your equation when figuring out how much you need to save for a baby. There's always the local public school — an excellent choice — but if you do want to send your child to a non-government school and need to start saving for it now, you'll need to add that to the expense column too.
The Final Number
Are you ready to know how much it will cost you to have a baby? Subtract your post-baby expenses from your post-baby income and stare at your new reality.