Preparing Financially for Parenthood
If you are an expectant parent, you have probably been inundated with information on medical terminology (epidurals and episiotomy, ugh!), how to build your birth plan (home birth or hospital? Midwife or doctor?, Meds or natural?), what to eat and not to eat (bye bye sushi night) and, I almost guarantee that you know what size of fruit your child is at any given week during your pregnancy (my little oven bun – yep I am 19 weeks pregnant - has officially reached mango status). But what I can say as I look down the barrel at welcoming my third baby boy, is that I have never, in all three pregnancies, ever been given a pamphlet or been able to download an app to help me financially plan for my impending bundle of joy! So here are 5 things I’ve learned along the way to consider financially as you plan to celebrate the birth of your babe.
Financial Prep for Parenthood
Create a Financial Maternity Leave Plan
In Canada, we are afforded the privilege of time off to bond with our little ones. Maternity leave in Canada lasts up to 15 weeks, and after that, you can take standard parental leave for an additional 40 weeks. Extended parental leave, if you choose it, lasts 69 weeks after maternity leave.
Employment insurance is meant to replace 55% of your weekly earnings up to a maximum of $573 a week. Those taking extended leave only get an income replacement of 33% up to maximum of $343 a week. This means you’ll hit the cap if your salary is $51,300 or more. To make matters worse, the income is taxable.
While parents are grateful for the benefit, it typically leaves a shortfall in their monthly budget when compared to their full-time working income. Taking time to understand the new budget you will need to work with for the year is a very important step to ensure you can truly enjoy the time as a family together during your time off instead of stressing about money or paying bills.
Once you know what that shortfall might look like, make a list of new expenses that might arise such as diapers, formula (if you are not breastfeeding), clothing, bottles etc… Having a clear vision of your new income and expenses will pave the way to assist you to build your financial maternity leave plan.
One of the things I have done to relieve the financial stress during maternity leave, is to save a little nest egg while I’m pregnant. Putting a little bit of money away each pay cheque while you are still working can go a long way to help with getting through your time off.
Consider Long Term Costs of Raising A Child
According to the Financial Post, the average Canadian will need to spend between $10,000 and $15,000 per year on raising a child. Another report from MoneySense suggested the figure is $257,000 over the course of their lifetime (until your child turns 18).
Whether these figures are accurate or not, there is no doubt that it costs money to raise a child. And, immediately after your maternity leave, if you do choose to return to work, one of the biggest monthly adjustments is the cost of childcare. A good idea is to sit with your partner and understand your income and projected new expenses post maternity leave so you can build a longer-term sustainable budget together.
Open an RESP (Registered Education Savings Plan)
In Canada, the average cost of a post secondary education is $14,000 - $16,000 per year, including residence. This is a whopping $64,000 for a 4-year degree program. In addition, forecasts suggest the cost of post secondary will continue to rise.
While education seems a like a far-off land as you snuggle and cuddle your new bundle of joy, the earlier you start to save, the more compound interest you can take advantage of so that when high school graduation rolls around, you can afford to support their educational goals and dreams.
One additional benefit of opening an RESP is that the Canadian Education Savings Grant (CESG) contributes $7,200 over an RESP's lifetime. It does this through matching 20% of your contributions each year (up to $500), which is why it is important for you to make annual contributions. And, who doesn’t want to take advantage of some free money while trying to save $64,000? Add this to compound interest and I’m in!
Get a Will for Financial Protection
This may seem like a morbid suggestion as you welcome your new baby but in order to protect your assets and your new little babe, it is a good idea to ensure you have a proper legal will in place. You need to consider things like who would take care of your child as their guardian in your absence. Who would ensure their needs are being met financially? What age would you like them to be when they get the proceeds from your estate? These days a call to an estate lawyer or even a will kit (if you have a simple situation) can provide you the peace of mind and protection that your little one is safe and financially sound no matter what happens.
Update your Insurance
In Canada we are very lucky to have universal health care. It means that our delivery and care for labor and recovery with baby are covered, unlike our counterparts in the US. However, you should still consider updating your insurance to ensure you have appropriate medical coverage for your new addition. It’s also a good idea to make sure you have enough life insurance to take care of yourself, your partner and child in the event of disability or death.
Once baby arrives, you’ll want to have the freedom to focus on taking care of them and yourself for a little while. Preparing your financial affairs before the arrival of your baby will give you the peace of mind to start parenthood on the right foot. And there will be so many other things to think about, the last thing you’ll want to worry about is money. Take advantage of the time during pregnancy to get your financial affairs in order, save a little nest egg and be clear on your long term baby inclusive budget – and then – let the magical journey of parenthood begin!
Happy Mothers Day to all the amazing Moms out there! If you are looking for more information to plan or budget, feel free to check out our budget calculator at Bromwich+Smith to get a head start. You can learn more about budgeting, here.
Author: Jasmine Marra
Jasmine is Vice President of Sales + Marketing at Bromwich + Smith and was recently honored as Top 10 Most Inspiring Leaders of 2021 by Industry Era Magazine. She has been featured as a financial expert in outlets such as CTV, Global TV, CityNews, CBC, the Financial Post and Toronto Star. She and her husband Chris reside in Calgary with two little boys and are expecting a third bundle of joy in September.