Budgeting for baby

So, you’re going to have a baby. Congratulations! For most new parents, getting settled means learning how to best function on three hours of sleep per night, and figuring out which detergent has the best stain remover. Some parenting preparations are best learned on the fly, such as how to change the messiest of diapers, but others require careful planning. In this whirlwind of excitement, financial planning rarely gets mentioned despite the fact that numerous important issues crop up once you have a child. Here’s a checklist of proactive steps you can take to budget for your bundle of joy.

Reassess your budget

If you haven’t established a budget or a breakdown of your monthly expenses, this would be a good time to start. If you are carrying a balance on your credit cards, pay that off first. There will be a whole list of things to buy before baby arrives, and ongoing expenses incurred afterwards. As tempting as it may be to buy everything at once, try to resist those feelings. Many purchases can be spread out over the first six to eight months.

Once your baby arrives and you start to get a sense of how much you’re spending, sit down and reassess your budget to more accurately reflect your new expenses. Don’t be surprised if you feel the need to track your expenses more frequently.

Save early to offset a change in income

Begin saving early to make up for any income shortfalls that may arise if you or your partner plan to take significant time off work. You’ll want to have enough money set aside to cover the loss of income during that period as well as the increased expenses. If either of you plan to stay home with your child indefinitely, make sure you can live on one income by adjusting your spending habits now.

If the partner who will stay home with your new baby plans to return to work after maternity or paternity leave, make sure to add monthly child care costs to your budget. These can be as low as $150 – $200 per month in provinces that subsidize childcare, and as high as $1,700 per month in some of Canada’s most expensive cities. Keep track of these expenses and other child care costs as you may be able to deduct a portion, up to a limit, against the lower income spouse.

Register for eligible benefits

Don’t forget to take advantage of EI maternity benefits if you or your spouse is taking time off work. You need to do this online at the Government of Canada website as soon as possible after you stop working. If you apply later than four weeks after your last day of work, you risk losing benefits.

If you are the birth mother of a newborn, you can use the Automated Benefits Application on the birth registration form when you register your newborn with your province. This allows you to apply for the Canada child benefit, the GST/HST credit, and related provincial or territorial programs for your child. You may also want to apply for the Canada child benefit, which is a tax-free benefit available to eligible families. To find out if you qualify for this or other provincial or territorial related benefits, visit the Canada Revenue Agency website.

Review your insurance needs

You will also want to review your insurance needs, including life and disability coverage. Now that there’s a new family member, there are additional long-term financial responsibilities that need to be addressed. Life insurance can help protect your family’s financial security if something unexpected happens to you or your spouse. The surviving spouse or partner can use the death benefit to pay off debts, support your child and meet other expenses.

Disability insurance is arguably even more important than life insurance, because it’s statistically more probable that you may get injured while in the workforce. Take a realistic look at your family’s spending to figure out how much coverage you should have. If you have group coverage through your employer, take advantage of the lower costs with these plans, but also be aware that you may need to augment that coverage with additional coverage purchased privately.

Update your wills and estate plan

With a new baby in your life, you and your spouse or partner should update your wills and overall estate plan with an attorney or notary, depending on the province you live in. If you haven’t yet had wills drafted, DO IT NOW. Should an unexpected tragedy occur, you’ll want to ensure your child is taken care of in the event that they lose both parents. Consider who you would like to act as guardian of your child, and ask them if they would agree to this responsibility.

Start an RESP

If you think raising a child is expensive, consider the costs of a post-secondary education – which gets more expensive each year. For a child born in 2017, the estimated cost of a four year undergraduate degree in 2035 could be in excess of $152,000. To help offset these costs, start a Registered Education Savings Plan (RESP) as soon as possible. Not only will the contributions to these plans grow in a tax-sheltered account, but the Canadian Government will also match your RESP contributions up to certain limits in the form of the Canada Education Savings Grants (CESG).

There may also be provincial programs available for education savings. For more information on RESPs, visit the Canada Revenue Agency Website.

Mind your retirement goals

Finally, don’t forget about your retirement goals. It’s easy to get caught up in making sure everything is in place for your new baby, but don’t put off your personal goals and long-term plans. Stay on top of your retirement planning, so that your child won’t be burdened with having to support you in your retirement. You may not be able to contribute at the same levels as you were prior to your new addition, but try to avoid stopping altogether. Review and, if necessary, adjust your budget at least once per year.

If you feel overwhelmed by these new financial realities, consider speaking with a financial planner. They can help you develop a plan to ensure your budgeting and savings goals are achievable.

Darin Yuzyk has over 20 years of experience in financial services. Drawing from his background in financial education services, he provides clients with quality financial planning to help increase their financial literacy and achieve their life goals.

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These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.

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