Having a baby means making lots of adjustments and changes. But there’s one area of life in which new parents don’t always make the changes they should—their finances. Your financial decisions, goals, and priorities should all be reviewed and adjusted when you have a new baby. This article describes ways to safeguard the financial future of your new family.
Before the baby arrives
It’s a good idea to get your finances in order before your baby arrives. But if you don’t get around to making some of these changes until after you become a parent, it’s not too late.
Organize your finances. Set up your regular bills so that they can be paid automatically or online. Establish an automatic savings plan that deducts money from your paycheck and deposits it into a savings account. Organize your financial documents at home. You may not have time to get organized once your baby arrives.
Make sure you have enough life and disability insurance. Insurance is key to making sure your family would be OK if the worst were to happen. Most experts recommend getting life insurance that covers 10 times that of your salary. It’s also a good idea to get disability insurance that would provide income for your family in case of a debilitating illness or accident.
Carefully review your parental leave policies. Make sure you fully understand your benefits, including your paid parental leave, your eligibility for short-term disability, and if you will be using vacation or sick time. These benefits and the decisions you make can have a large financial impact. Click here for a full overview of EI Maternity and Parental Benefits.
Review your medical coverage. Is your current health insurance plan the best option for a young family? If you need to make changes, find out from human resources (HR) when and how to do so.
Plan ahead for child care expenses. If you’ll be using child care, this will probably be the single biggest new expense you’ll incur after you have a child. Consider your child care options as early as possible, and make a plan for how you’ll pay for the option you choose.
Pay down as much of your debt as you can before the baby arrives. This will help free up money for baby-related expenses or college and retirement savings.
If you plan to take any unpaid or reduced-pay leave or if your partner does, start saving now. If one of you will be quitting work, consider starting to live on just one salary as soon as possible. By banking one paycheck, you’ll be able to increase your savings and get used to living on one income.
Plan for how your household budget will expand for new expenses. Many new parents are shocked at how much essential items, like diapers and formula, cost. Diapers alone can add $100 a month in expenses. It’s important to have a plan for how you’ll cover these new expenses.
Consider joining a warehouse buying club. Often, the best way to save on items you’ll buy in bulk, like diapers, is to join a buying club, like Costco, BJ’s Wholesale Club, or Sam’s Club. You might visit a few of these before your baby arrives and compare the prices with those of traditional retail and online stores, so you have an idea of which has the biggest savings.
Sign up for a baby-gift registry. If you know you’ll need some items that may stretch your budget, sign up for one of the many baby-gift registries offered both by traditional retail stores, such as Walmart and Target, and online stores, like Amazon. And let your friends know you’ve done so, so you get baby gifts you truly need and avoid duplicates of things you don’t.
Pay your monthly bills a week or two before your baby is due if you haven’t set up an automatic payment plan. The first few weeks after the birth of your baby are bound to be hectic. Paying your bills beforehand can help you avoid late fees.
After the baby arrives
Look for ways to save on baby-related expenses. Look for ways to cut expenses, such as buying used clothing, equipment, and toys. Check out thrift or consignment shops that sell gently used clothing, gear, and toys at a low cost. Don’t turn down hand-me-downs or skip yard sales either. These are great ways to save on items that babies will outgrow quickly. (For safety reasons, experts recommend that you buy a new crib and car seat.) Also, remember that babies don’t really need a lot of items, especially when it comes to outfitting a nursery or buying toys.
Buy toys, clothing, and equipment as you need them. You never know what size your baby will be wearing in a few months, so it’s best to buy clothes as your infant needs them. The same is true for toys and other gear. You can borrow large items, like strollers or swings, from a friend before you make an investment. But before you buy, search for the item in the Recalls and safety alerts of the Canada.gc.ca website to see if it has been recalled. Many strollers have been taken off the market because of safety concerns.
Add your baby to your health insurance plan. You can do this upon delivery. Your baby will need to see the doctor a half dozen or more times during his first year and for annual checkups after that. If you need more coverage, there’s usually an open enrollment period each fall when you can switch health plans.
Start saving for college. It may seem like college is a long way off, but most people need all that time to accumulate college savings. Look into your college savings options, such as Registered Education Savings Plans (RESPs). Even if you can only afford to put small amounts into college savings, they can really add up over time. You can also ask relatives to contribute to college savings instead of giving birthday or holiday gifts.
Don’t neglect your retirement savings. Saving for college is definitely important, but it’s not more important than your retirement. Your child will be able to take out student loans to cover the cost of college, but you can’t take out loans to pay for your retirement. So, if it’s a choice between the two, fund your retirement.
Get a Social Insurance number for your child when you are in the hospital. You will need this to take advantage of certain tax breaks and deductions. You can also contact Service Canada after leaving the hospital to get this done.
Prepare or update your will. If you don’t have a will, draw one up as soon as possible. Be sure to name a legal guardian for your child so that if something happens, he or she will be raised by the person of your choice. Writing a simple will is fairly easy. You can prepare one yourself with help from websites such as legalwills.ca. Or you can hire a lawyer to do this for you.
Review the beneficiaries on all of your legal and financial documents. Make sure your child’s name is listed as a beneficiary wherever appropriate.
Take advantage of tax-savings programs. Parents get some good tax breaks, including reducing their taxable income by $8,000 for each child under seven, and $5,000 for children aged seven to 16. The Canada Revenue Agency (CRA) website can provide more information on which childcare expenses are eligible for the deduction. The Children’s Fitness Tax Credit is another initiative that allows you to claim eligible fees of up to $1,000 per child (under 16) for physical activity programs, including lessons and team sports.
Finally, realize that you can’t do it all. For many people, it’s just not realistic to expect that you will be able to fully fund your child’s college education and your retirement while maintaining the lifestyle you had before you had a child. Expect that you’ll need to make financial adjustments today and down the road—that’s simply part of being a parent.
© LifeWorks Canada Ltd 2018