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Monday, 21 October 2019

Oh Boy!

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Double trouble. 
So, the exciting news out of Stealthville is that we are expecting our second child! Another boy – Stealthy Junior Version 2.0!

Because, you know, a full night sleep is totally overrated, cold coffee isn’t that bad, and who doesn’t enjoy watching the same episode of Paw Patrol for the 20th time J

Estimated time of arrival is towards the beginning of 2020, and my wife and I super excited to expand our little tribe. Yes it will mean running on zombie mode for a few months, but at least this time round I am semi-skilled at changing nappies and pretty fluent in goo goo gah gah.

Now, since this is a financial blog, I will dedicate the rest of this post to some of my thoughts around the finances of a second child, and save the rest of my dad jokes for when my wife has woken up for the 7th time to feed – they always go down a treat at around 2am.

With a second child (and especially one of the same gender) you definitely benefit from some economies of scale and reuse. So luckily a lot of the Capex spend I mentioned in this post on the cost of having our first child is already covered. Cots, prams, car seats, bottles, clothes, bedding is all pretty much sorted.

Then of course additional children mean there will be extra ongoing costs like groceries and clothes. But in this article I am going to focus on some of the bigger expenses related to children - 2 obvious, and 2 maybe not so obvious.

The Terrible 2


Two big expenses which immediately pop into most people's minds with regards to children, are medical and education.

Medical

Adding Junior version 2.0 onto our medical aid will immediately bump up our monthly medical expenses. And I am definitely going to have to increase the contributions to our pseudo-PMSA as well. The first few years of medical expenses are also pretty rough in terms of ad hoc expenses – vaccinations, medicines, and Paediatricians charge, let’s call it “specialist rates” for consultations.

And then let's not forget that medical inflation runs at well above general inflation, so these medical expenses are likely to make up a bigger and bigger portion of our expense pie going forwards

Education

I won’t lie, this one scares me!

Not only is education inflation well above general inflation, but the schools are pretty sneaky in pushing through “gradeflation” (as one of the readers of this blog called it). This means that each grade becomes progressively more expensive  – so when your child steps up a grade you pay a higher price for the higher grade, and then they load the annual increase on top of that.

With regards to Tertiary,, I will be opening up an investment account to cover 2.0’s tertiary cost when he gets there. I will use the same approach as I did for Stealthy Junior's Teritary savings.

The University bill is something which surprises many parents (often resulting in debt for either the parents or the children). I want to be well prepared, and so I will start this investment as soon as Junior 2.0 is born.


The Hidden 2


The direct costs of children are usually pretty easy to figure out (and I touched on two of the big ones above), but there are also other costs which may catch people off guard. The two I mention below are important to factor in - and since they are form part of the expense triangle of doom, it is important to not let them get out of hand.

Cars

People may be tempted to rush off and buy a brand new super sized SUV at the first sign of pregnancy – because, you know, a small car is not nearly big enough for prams, baby bags and the family (apparently).

When my wife was pregnant with our first, our discussion around the car lasted all of two minutes - we would keep our little hatchback and try make it work. 3 and a half years later, and not one regret. Despite our boot being pretty much entirely taken up by a pram for Stealthy Junior’s first 2 years, we managed to make it work 99.9% of the time.

I can think of 2 occasions where we could have done with a bigger car – and both were related to holiday trips. But for those we just called in some favours/made a plan. Yeah, maybe a teeny tiny bit inconvenient, but not nearly as inconvenient as a monthly car payment.

Okay, but that was for one child, what about two? Surely now we need a SUV?

Well, Iwe are pretty keen on trying to make the Stealthmobile work for two kids as well knowing what a massive financial benefit this be. I suspect that there will be an increasing number of occasions where we may wish we had a bigger car, and there will definitely be some occasions where the hatchback physically won’t work. But for those situations we could go full tilt and hire a Mercedes Benz GLS (not that we would) and still come out better off than buying a new car.

Houses

We are currently in a 2 bedroom house, which means Stealthy Junior and Junior 2.0 are going to have to share a bedroom. Personally I don’t think this is a bad thing, and they are probably going to get up to all kinds of mischief at night...

But at some point, when they are older, they are probably going to need their own bedrooms. And on this point, I would really love to get your guys thoughts on something.

At what age do you think a boy needs his own bedroom?
When they hit double digits? When they become teenagers? Did any of you share a room with a sibling growing up?

In all likelihood, another room is not a question of if, but when, and we are probably going to be needing a third bedroom at some point in the future.

My current thinking around this is that there are 3 possibilities:
  • Sell our current house and move to a bigger place. Buying and selling property is expensive – really expensive. When you consider the estate agents fee on the selling side, and the transfer duties, lawyers fees, and bond initiation fees you could easily end up in the 100’s of thousands of Rands.
  • Become renters again. We could pull a stunt similar to the way we handled our move to Centurion – rent out the old place, and then rent a new place. It seems our 2 bedroom place is on the “bigger” side and I think we could get a 3 bedroom rental for around the same (or a little more) than the rent we could pull in from our place. On the downside it means we become landlords of our property which comes with the associated risks of vacancy’s, bad tenants, damages, etc etc.
  • Renovate. As I mentioned above, our place is decently sized for a 2 bedroom, and there is potential to shift a few walls around to turn it into a 3 bedroom. The downside of this is that it won’t be cheap, and there is also the huge inconvenience of where to stay while the building work is happening.
At least we still have a few years to figure out which option to take...

How Does This Affect Our Financial Freedom Plan?

Having a second child is going to mean extra costs, no doubt about it. And since expenses is the only thing which determines how much you need to be financially free, Junior 2.0 is definitely going to have an impact on our original plan to be financially free by 2030.

It is going to be a stretch to achieve our original 2030 goal, especially in light of the fact that we are currently around 30% behind where I'd hoped we'd be. But I still need to crunch the numbers properly and see if there is a way we could still make it work. 

I will do a full post on the updated plan soon - I am keen to see what comes out the other side! 




Till next time, Stay Stealthy!
 - ~ - ~

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