The Ultimate Financial Prep Guide to Starting a Family
This article and guide were created in collaboration with The Curve, an education platform providing investing and finance content to women globally.
Are you thinking about starting a family, but thinking ‘geez’ how am I going to afford this? Or are you worried about the mountain of costs involved? You’re not alone, and the last thing we’d want is for you to give up your hopes of having kids, because you don't think you can make it work financially.
The Curve and Crayon teamed up to share THREE steps to help you prepare for the future and a handy accompanying guide.
Step 1: Calculate the Costs
Sure, prams, bassinets and car seats are expensive, but the biggest cost isn't the cute baby items, it’s the income you don’t earn because you’re taking time off work (aka taking parental leave).
So how much do you need? Good question! To help answer this question, first ask yourself:
How much time do you ideally want to spend with your baby?
If you have a partner and you’re ready to talk about this together, how much time do they ideally want to spend with the baby?
How much does it cost to run your life per month?
Once these questions are discussed and you realise how much you need, add about $8,000 on top of that for extra baby costs. Yep, that’s the average cost of raising a child in their first year (IRD Research Paper).
Don’t worry about calculating it down to the last dollar, a ballpark figure will be just as helpful because things will likely change between now and your baby’s arrival. However, the more prepared you can be financially, the less stressful those little unexpected surprises will be!
Step 2: Work out what you'll get from the government and your employer
A lot of expecting parents don’t realise what you can (and can’t) get from the Government as a helping hand. In New Zealand, the government offers:
Primary Carers (typically the birthing parent): income replacement up to $712.17 per week before tax for 26 weeks, then $69/week until your child turns one, totalling a maximum of $20,310 for the year
Partners: up to two weeks of unpaid leave
There are quite a few eligibility requirements though, so make sure you get familiar with these using Crayon’s New Zealand Parental Leave Entitlements Estimator.
Next, see if you’re eligible for additional Working For Families tax credits. Further Government assistance from WINZ may be available to you depending on your family income.
Lastly, have a chat with your employer. Some employers might offer something above the Government amount. How do you figure this out? You can use The Curve’s Anonymous Parental Leave Survey or Crayon’s Parental Leave Register.
Step 3: Work out how much you need to save
Chances are, there’ll be a gap between what you need money-wise and what you’ll receive while on parental leave.
Use The Curve’s Calculator to determine how much you need to save each month. Even if you decide not to have kids, you can repurpose your baby fund for other goals, such as investing, travelling, or even starting your own side hustle.
Other helpful tips to increase savings are firstly - try living off one income (if you’re a couple) or a reduced income - even just for a couple of weeks. It’s a good way to test what it’ll be like on parental leave. You can use the extra money you save to kick-start your baby fund!
Another way to ramp up your savings - especially if things are tight right now and you still have time to plan - is to commit to stashing future pay rises into your baby fund. This technique, pioneered by a Nobel laureate, has been proven to work.
One last pro tip: check out the common curveballs to avoid the financial surprises that catch new parents off-guard. It might feel daunting, but the sooner you start chipping away at this - even if it’s just a small amount each week - the more confident and prepared you’ll be to start your family journey.
Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 30 June 2023.