Whether you are expecting a baby or have just become a new parent, there is an incredible amount of pressure on your shoulders. This pressure means minding your child’s health while also covering all the expenses that come with parenthood. Starting your planning now will save you on stress for years to come, and set your child up for success. Here are a few tips on financial planning for new and expecting parents.
Budgeting and Saving for Baby’s Arrival
If you’re still expecting, you probably know there are tons of baby-related expenses coming your way. While most things you can foresee like diapers and a crib, you might not be fully prepared for all that parenthood will throw at you.
Experts recommend you save at least $10,000 in total for new baby expenses during the first year. It might be a stretch depending on your budget, but the idea is to try and save as much as you can. It’s always better to be overprepared!
However, remember not to overbuy baby items. Try to stick to the constraints of your nursery and don’t over clutter. Shop around for the best price before going with your first option.
If you’re hosting a baby shower, try to put together a baby registry with critical items that would be the most helpful for you. A baby registry will also help your friends and family coordinate and avoid buying repeat items.
Baby on a Budget
Hospitals offer items for your newborn like diapers, blankets, and formula that will get you through the first month. Their help can be beneficial for new parents who are trying to save as much as they can.
When possible, try to borrow or buy used items from friends and family members with little ones who have outgrown them. Not only does this help you save a ton, but it’s also great for the environment too.
Aside from the few items you keep for mementos, your child will eventually outgrow their baby things. Try not to spend too much on short term baby items. If you’re thinking about having more children in the future, save whatever you can recycle. If you won’t need these baby items again, sell them to other new or expecting parents. There are plenty of buy-and-sell groups on Facebook, or you can use Craigslist and Kijiji.
Childcare is also a huge expense that many parents leave out of their planning. If possible, rely on your close friends and family for babysitting to help offset this cost. If you feel obligated to say thank you, offer a nice dinner or a gift card for their favourite coffee shop. These are both friendly, gratuitous gestures that say thank you without putting you too out of pocket.
Take Advantage of Government Benefits
The Canadian Government offers excellent benefits to expecting and new parents for child care. Here is a quick summary:
Employment Insurance: Maternity Leave
The parent who is giving birth is granted up to 15 weeks, with 55% of their typical salary covered, with a weekly maximum of $573.
Employment Insurance: Standard Parental Leave
Standard Parental Leave allows each parent to receive a higher percentage of income with less time taken off of work. Standard parental leave provides 40 weeks off work, but one parent cannot take more than 35 weeks for themselves. This leave allows for 55% of one’s typical salary, with a weekly maximum of $573, similar to maternity leave.
Employment Insurance: Extended Parental Leave
An Extended Parental Leave allows for a longer period taken off work, but the percentage of income received is lower. Extended parental leave provides 69 weeks off, but neither can take more than 61 weeks off. Parents are granted 33% of their typical salary, with a weekly maximum of $344.
Canada Child Benefit
This benefit is a tax-free monthly payment granted to eligible families to assist with the costs associated with raising a child under 18 years of age. The benefit may also include a Child Disability Benefit.
The amount awarded is based on the parents’ income tax and benefit return, as calculated by the Canada Revenue Agency (CRA).
Increase Your Emergency Fund
If you didn’t have emergencies or “rainy days” before, you certainly will now. You want to be able to keep your household afloat in case of any financial crises, especially with the new responsibility of caring for your little one.
One rule of thumb recommends keeping 3 to 6 months worth of essential living expenses aside for emergencies. You don’t have to keep everything in one account, as long as you have some money tucked away, whether it be in savings accounts, liquid investments, and so on. Try our emergency fund calculator to figure out how much you need to save.
Start Saving for College or University Now (Even If They May Not Want to Attend)
It seems far away, but starting to save for your child’s education as early as possible will get you to your goals quicker.
There are a couple of ways to save like a tax-free savings account (TFSA) or a registered education savings plan (RESP).
A TFSA is a personal savings account that allows you to save money for almost any purpose. TFSAs are completely tax-exempt even once you have withdrawn the amount.
An RESP is a savings account created to save for your child’s post-secondary education. RESPs are free from being taxed until it’s withdrawn for your child’s education.
Are you interested in learning more about TFSAs and RESPs? Check out our blog post Knowing the Difference: RRSPs vs. RESPS vs. TFSAs.
Create and Update Your Estate Planning Documents
Part of financial planning for new and expecting parents is estate planning. If you don’t have one already, consider creating your will to ensure your family and children are taken care of once you have passed on. It may seem premature, but wills can always be revised to add assets and change divisions as the years go on. What is essential is ensuring that there is a plan in place for the future.
Another important item to plan for is your life and health insurance. If you don’t have life insurance already, it may be in your best interest to shop around for policies that best suit you and your family.
As for health insurance, most people have general coverage through their workplace and OHIP. Check-in with your company health coverage to see how much it extends to your little one and if you need to update the policy to include them.
One of the first significant steps in financial planning for new and expecting parents is saving. If you’re looking to save for your baby expenses or start contributing to an RESP for your child’s education, give Finally a try. With Finally you can create a custom financial savings plan based on your income, goals, and priorities.
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