Why you should sort out your super before having kids

The cover-up

I have never been one for conspiracy theories. I believe we have put a man on the moon. I am happy that the world is not run by the Rothschild family. I am also quite sure that Barack Obama was born in Hawaii, not Kenya.

However, there is a conspiracy theory that I believe to be indisputably true. This one was developed by my wife and I based on extensive evidence primarily related to the two other members of our home, who weigh 13kg and 9kg respectively.

It is this: no parent accurately describes the time and financial commitment of having kids. The Lying Parent Conspiracy (or LPC as they shall henceforth be known) do tell you about the good parts: the smiles, the giggles and the fact that these small yet despotic angels idolise you.

The LPC are cunning. Not only do they carry on about the good things, they throw in a couple of red herrings, apparently unpalatable tasks that anyone who owns a television is already familiar with. The LPC inform you that you will get less sleep, that dealing with human poo (not your own) will become a daily occurrence and regurgitation of food is a hobby practiced by all of the sub two-year-old population.

I already knew these ‘facts’ prior to the arrival of my daughter, and was comfortable I could deal with the rigours of parenthood based on prior similar experience. I had pulled all-nighters at least monthly since my eighteenth birthday, so the absence of sleep wasn’t an issue. I also once changed the underwear of a friend, Dave*, after nine schooners, six scotches, four vodkas and 3am vindaloo (in that order) created unconscious gastrointestinal chaos. But I digress…..

The expense tsunami

What the LPC don’t tell you is the time and financial commitment associated with children. These are the true challenges. The reason they don’t tell you is they are sadists who would like the remainder of the population to suffer as they do.

While they indisputably brighten your life, kids are not a great financial decision. They will cost you quite a few thousand dollars before they are born, considerably more if you are not as lucky as I have been in having two healthy ones. Think cots, car seats, prams and doctors’ bills. I haven’t bled money like that since Vegas 2011.

Following their birth, what starts as a river of expenses quickly becomes a flood that only Noah himself could survive. You have to feed, clothe and otherwise keep the babies alive. Then there is day care, birthdays and Christmas. Then there are incidentals, like every time my son has a bowel movement it costs me 50 cents (five nappies a day and there is almost $1,000 per year).

In preparing for this article, I calculated how much household income we have spent on funding my daughter’s existence to age three. Princess Cashburn (aka child number one) has to date cost about $60,000. That is one child, who is three years old. If we throw in The Moneypit (aka child number two) total expenditure hits over $80,000.

Horrifying. Financial warfare. Especially when you consider this number excludes costs for sports and activities, school fees (too young yet, thank God), the additional rent or interest associated with a bigger house, a bigger car and/or renovations needed for a larger family. Then there is also the lost income associated with one parent taking time off work and returning part-time (or not at all), as has been the case in our house where income is now less than it was before the Princess Cashburn was born.

What haven’t I done?

As I’ve said, we’ve spent $80,000 on our pint-sized financial ruiners so far, while our income has shrunk. I didn’t save much money before they were born, so this leads me to the conclusion that I must have burned (rather than saved) all of my disposable income prior to their arrival.

The decision not to save money before kids was quite stupid. Up there with announcing the wrong best picture at the Oscars or electing a reality TV star as the leader of the United States.

Why this is such a colossal mistake.

Most Australians don’t have enough superannuation for a comfortable retirement. The average shortfall (i.e. the gap between how much super you need and how much super you have on the day you retire) for a single Australian is $330,000 while the average Australian couple are $209,000 short of the super they need to retire comfortably.

Both figures are relevant in my case, as I am a strong chance of ending up single once my wife reads the following section.

How far behind am I?

I am now in tears, having done the following calculations.

Had my wife and I invested $43,000 between us (half of what we have spent on our kids to date) in superannuation before our kids were born, we would have an extra $443,000** in super on the day we retire. To put it more simply, this means we could have retired about five years earlier than we now will.

That's disappointing.

I think of the money we spent. Me on nights out and my wife on shoes, clothes and God knows what else. And I realise it isn’t my kids who are undertaking a holy war on my finances, most of this is self-inflicted.

Learn from my mistakes

If you act early, my mistake can be avoided. How?

  1. Figure out how much you can save after you have done the socialising and spending you ‘need’ to. The advantage of putting this in super (over a bank account for instance) is the money then cannot be touched after six drinks on a Friday night. Plus there are tax benefits from investing in super.

  2. Make voluntary super contributions when you can. GROW Super has made this really easy by allowing you to link your bank account to your super so you can automatically round up purchases or make monthly contributions at the touch of a button. Just watch out for those contribution cap limits.

  3. Your super fund should also allow you to view your balance easily. This way you can check in on your account whenever and from wherever you want.

  4. Don’t (necessarily) put off having kids, just put some money away before they drop. While they cost a bomb, they are the best (and most challenging) thing that will ever happen to you.

Good luck. You’re now one step closer to not being old and poor.

Simon Hannigan

Simon Hannigan is a co-founder and Director of GROW and Director with global professional services firm Ernst & Young. Simon is a chartered accountant and has a personality. Who knew such rarities exist! Simon lives in Sydney with his wife and two children.

*Name intentionally unchanged to achieve maximum embarrassment to the offender.

**Based on an average return of CPI + 5%, retirement age of 65 and CPI of 2.5%.