Petra earns €60,000 a year. After their first child, she plans to take a €20,000 role for five years and then go back to full time. Over the next few years, she and her partner also expect a bigger home and possibly a move abroad. And like anyone, they could face an illness or a redundancy.
Even an expected life event can strain a household when its financial shape is missed: a break lasts longer than planned, childcare starts before leave payments arrive, or earnings recover more slowly than assumed. A scenario cannot predict the outcome, but it can make those possibilities visible.
Many big life events can be seen coming
Children, a career break, a home purchase and a move abroad can often be seen months or years ahead, though their timing can shift. Sudden illness, redundancy, family emergencies and market shocks may arrive with little or no warning. A useful sorting question: can you name roughly when it will happen? If so, it can go in the plan: modelled in the projection, placed in the month it lands in the cash flow forecast, tested with a what-if scenario. If not, it usually gets a buffer instead.
The common mistake runs both ways: treating foreseeable events as surprises, or trying to predict specific bad ones.
When a parent cuts back, the pay given up can outweigh the costs
The number people quote for a child is a single lump sum. It hides the line that is often bigger: the income shift when a parent reduces paid work. For Petra, illustratively and in today’s money:
| Over the years | In today’s money | |
|---|---|---|
| Direct costs to age 18 | about €763 a month | about €165,000 |
| Five years at €20,000 instead of €60,000 | €200,000 before tax | about €120,000 at an assumed 40% tax on that slice |
| Pay 10% lower for 20 more years after returning | €120,000 before tax | about €72,000 |
| Income shift in total | about €192,000 | |
| With the lost pension contributions (10% of pay) | about €224,000 |
The direct-cost figure follows Germany’s statistics office (about €763 a month in its 2018 survey, higher in today’s prices) and Save the Children’s 2024 figure for Spain (€758 a month). Pay given up comes off the top of income, so it is taxed at the highest rate, not the average one. At a lower tax rate the income side is bigger; near 50% the two come out about even. If neither parent cuts back, the picture is very different. Parental benefits, tax rules and pay penalties differ widely between countries and people; the pattern is the useful part, because a projection that models only the spending misses the larger line.
Families also often move to a bigger home or a particular school area. A €300,000 upgrade adds interest, maintenance and property tax for decades. Whether that counts as a child cost or a lifestyle choice, it belongs in the projection.
How childcare costs differ by country
Early years are dominated by childcare, roughly €6,000 to €20,000 a year depending on country and format if both parents work; the national averages above already include a typical level, so your own number can sit well above or below them. Middle years are activities, clothing, food and school costs; later years education, transport and possibly university. Nordic countries heavily subsidise childcare and university, which lowers the direct-cost line but not the income-shift line. The US and UK have expensive childcare and mixed university costs. India has low-cost state schooling but often significant private-school costs for middle-class households, and university costs are meaningful. Australia and New Zealand sit somewhere in between. Your own country’s figures say more than a headline number from a US study.
Quick check: in Petra's example, which line is bigger, the child's direct costs or the pay given up?
The pay given up: about €192,000 take-home against about €165,000 of direct costs, and about €224,000 once lost pension contributions are counted.
What a career break costs beyond the gap
A job change swaps one income for another; a career break is a stretch of reduced or no income: parental leave, a sabbatical, study, caring for a parent, recovery from illness, redundancy before the next job. Four costs are worth modelling first:
- The gap itself. Income drops; costs drop by less. The monthly deficit comes from savings, cuts or a partner’s income, and the length matters: six months on a six-month buffer is a stress test, two years needs its own plan.
- Pension contributions. They usually stop, and with them any employer match; time-based pensions may pay less later. Many planners treat this as a permanent loss, because missed contributions are rarely caught up, though some state pensions credit years spent raising children or caring, and some accounts allow catch-up contributions.
- Benefits and insurance. Employer-provided benefits may change or end during a break. Health cover may continue through a public system or a partner’s cover, while employer life or disability cover may stop; the result depends on the country and the employment terms.
- Re-entry. Skills date and networks fade, and pay on return is often lower; studies of parental leave in particular find wage penalties that vary by country, field and length. A 5 to 15% lower salary after a multi-year break is an assumption some planners use, not a measured constant.
None of this argues against a career break, which is often right on its own merits. It is a better decision when the numbers are visible before the break, not during it.
A home purchase or a move abroad changes many inputs at once
A home moves three lines together: a large asset appears, a large loan appears, and the monthly mortgage, maintenance, tax and insurance replace rent. The real estate post covered rent against buy in general. A move abroad changes even more at once, which makes it the event where intuition is least reliable. For both, many people run the scenario each way over the real holding period or horizon rather than assuming the answer.
The six inputs for a home purchase
- Price and deposit: the cash that leaves on day one, including closing costs and taxes: 2 to 4% of the price in some countries, 5 to 15% in others (parts of continental Europe, India, some UK cases).
- Mortgage terms: rate, length and type of repayment; in some systems, tax and insurance collected with the payment add noticeably.
- Running costs: property tax, insurance, maintenance (a common rule of thumb is 1% of the price a year, more for older homes), utility differences, building fees.
- The deposit’s opportunity cost: the cash stops earning market returns, which adds up over 20 to 30 years.
- Expected price growth: long-run real house-price growth has usually been in the low single digits, often around 1 to 3% a year after inflation, below share returns, and some markets have gone decades with none.
- Selling costs, if you might sell within about ten years: agent fees and transfer taxes, on top of years of interest and maintenance, can make buying worse than renting.
The five dimensions of a move abroad
- Cost of living: rent, food, transport, healthcare, childcare. Comparison sites such as Numbeo or Expatistan beat guessing, and the headline-cheap city is often less cheap for your own way of living.
- Income: the realistic offer or range for you, not the city’s median.
- Tax: effective rates on the same pay vary widely; treaties, double taxation and special regimes for new residents (Italy’s inbound-worker regime, Portugal’s winding-down NHR scheme, various expat schemes) all change take-home pay.
- Retirement accounts: cross-border rules differ by account and circumstance. Leaving can end employer contributions, impose restrictions on new deposits into accounts such as a US 401(k), UK ISA, Indian PPF, Australian super or Canadian RRSP, change tax relief, or leave the account open but treated differently by the new country. Both countries’ rules for the specific account matter, and the new country’s accounts may or may not be open to you.
- Currency: savings in one currency and spending in another expose the plan to exchange-rate moves; the currencies post covers this, and a range of rates says more than one.
When events overlap
Life stacks events: a promotion, a house and a first child within eighteen months. Two or three together can interact rather than simply add up: they may amplify one another, overlap in time or partly offset. A common approach is to run each as its own scenario before combining them, which often shows one dominates and the others are almost incidental, and to move what you can control: a career break can often wait a year, a purchase six months, a move can fit around a partner’s work.
A buffer for what nobody can see coming
For the unforeseeable, planning works by category. Three buffers do most of the work:
- An emergency fund: a common guideline is three to six months of costs in liquid savings, sized to job stability, family and one or two incomes.
- Insurance: health, life, disability, property and liability, which move rare but ruinous risks off the household.
- Room in the plan: a savings rate that can drop for a while, spending that can be cut, a timeline that can stretch a year or two. That is what turns a shock from a crisis into an inconvenience.
None of the three covers everything, and the right size of each depends on the household.
Quick check: your employer announces a reorganisation. Does a possible redundancy go in the plan or get a buffer?
Usually a buffer: you cannot name when, or whether, it will happen. A planned career break or a house purchase, which you can roughly date, goes in the plan.
Of the events you can already see coming, which one is not yet in your numbers?