The anticipation of a new arrival is sure to bring thoughts of sleepless nights, an endless supply of diapers but most importantly, a lifetime of love. Financial stress is the last thing a new parent needs during an otherwise joyous time, and careful planning will ensure you have all your rubber duckies in a row before welcoming a new addition into your family.
Here are three of the biggest financial decisions to examine when having a child:
Reduced Maternity Leave Income
Working moms will likely be subject to a drop in income once they start maternity leave. How dramatic this change is will be solely determined by pre-maternity leave income, as the monthly amount will be 55 per cent of income up to a maximum of $537 per week. Therefore, if you make anything over $50,800 you are set to receive less than 55 per cent of your income. A full overview of EI maternity and parental benefits can be found on the Government of Canada’s website.
How should this drop be handled? Families that have already adopted the practice of living off one income will see a smoother transition than those that rely on both. To ensure a gradual shift, it’s best to create a new budget to factor in the drop in income, and adopt it in the months leading up to the birth of the baby. As an added bonus, any excess may be put into savings for your little one.
Getting Started on your RESP
A Registered Education Savings Plan (RESP) is a great way to get a head start on putting money away for your child’s education with a little help from the Canadian government. As part of the Canada Education Savings Grant, the government will deposit 20 per cent of annual contributions into your RESP every year, up to a maximum of $500 and a lifetime limit of $7,200. In other words, to gain maximum benefit, you must contribute $2,500 per year – that’s a whopping $45,000 by the time your child turns 18, and could even be more depending on investment performance and compound interest.
Your RESP can be opened through a bank, discount brokerage or financial advisor and may include a number of investment options. For more information, visit the CRA website.
Additional Baby Expenses
When a new baby enters the picture, the added expenses can hit you like a pile of dirty diapers (minus the smell!). It’s important to factor the extra costs associated with parenthood into the equation. For instance, a baby uses 10-15 diapers in the early days. Setting up a baby fund and comparison-shopping using apps like Flipp can help you control and manage these costs. Careful planning and pre-purchasing essential items when on sale can ensure you get the most value for your money before the baby arrives.
Once you’ve considered all of the above, you’re off to a good start, but remember that this is just the beginning. In the years to come, expenses such as food, new clothes, extracurricular activities and possibly the biggest purchase of all – a new home to fit your growing family – will make a substantial impact to your budget. Now is the time to make sure there is some wiggle room. Most of all, it’s important to consider the future costs associated with children and ensure they don’t leave you ‘house poor.’
Our Best Advice
New parents have a million and one things to worry about. Getting started on a solid financial footing will allow you to focus on creating happy memories and keep you from dwelling on how you’re going to pay for it all.