Practical Financial Planning for Parents-to-Be
By, Carla Hindman, Director of Financial Education, Visa Canada
Planning for a baby is exciting and sometimes a little frightening for expectant parents, especially first-time parents. The months will fly by and soon you'll be at home embarking on an adventure along with the newest member of your family. Welcome to the excitement, exhaustion, fascination, bewilderment and love that is parenthood.
Along with the joy and fulfillment that a new baby brings, you'll also have new financial responsibilities. Some costs are unavoidable, while others may largely depend on your discretion. Sticking to a financial plan could help provide wonderful opportunities and experiences for your child while keeping your family's costs under control.
Preparing for the cost of birth. Paying down debt, creating a new budget, building an emergency fund and reviewing the beneficiaries on your account should all be on your pre-birth checklist. You might not have the time or energy for these tasks when you're parenting a newborn so it's a great idea to get a head start on them now.
Parental Leave. Canadians can qualify for employment insurance to help replace some of their income when they take time off after the arrival of a new baby. Under the current program, mothers can take 15 weeks maternity leave, and then both parents can share an additional 35 weeks of parental leave. Benefits will be paid for a maximum of 50 weeks. Employment Insurance benefits may pay out 55% of a salary capped to a certain amount. Recently, the 2017 federal budget announced the option of an 18-month parental leave, which would allow for an extra six months of leave, but at a reduced benefits rate of 33% of the maximum salary level.
It's important to consult applicable legislation to explore what parental leave you may be entitled to, which may vary according to your province of residence. And don't forget to research your work's parental leave policies, as some companies offer top-ups to EI. To find out more about what you qualify for, check in with your employer's benefits department and Service Canada.
Group benefits. When you finally welcome your new baby into the world, it'll be nice to have a little extra space for your growing family. Many employers offer group benefits plans which allow employees to upgrade to a private or semi-private room in the hospital. Be sure to review your coverage to see if you're eligible and remember you may also be covered for an upgrade if your spouse has a benefit plan as well.
Know what things cost. It's amazing how many "things" babies need. Must-haves include a car seat (required by law for car travel), crib and bedding, stroller, diapers, clothing and home baby-proofing. Add in things like a baby monitor, baby classes and toys and we're talking thousands of dollars before your baby can even crawl! Practical Money Skills offers a handy calculator that can help you estimate baby-related expenses.
Plan for the worst-case scenario. As a parent, you're responsible for the wellbeing of your child. Now may be the time to prepare or revise a will and consider who you will appoint as your child's guardian. Also, if you don't have life insurance, this is a good time to start shopping for a policy. If something were to happen to you, life insurance can help provide financial support for your child in the coming years.
Investigate tax advantages. There are several tax benefits available to parents to help alleviate the extra costs. The Canada Child Benefit (CCB) replaced three previous programs- the Canada Child Tax Benefit, Universal Child Care Benefit and the National Child Benefit Supplement in July of 2016. The Canada Child Benefit is a monthly tax-free payment made to eligible families to help them with the cost of raising children under 18 years of age. For more information on CCB visit the Canada Revenue Agency.
Consider opening a Registered Education Savings Plan (RESP). An RESP is a government-sponsored savings vehicle designed specifically for education savings. Its greatest benefit is that you can watch the money grow tax-free until it's withdrawn for qualified education expenses – and as a bonus the federal government will provide a grant of 20 per cent of the first $2500 in annual contributions made to an RESP to a maximum of $500 per year. (The lifetime Canada Educations Savings Grant limit for an RESP is $7,200).
The Canada Learning Bond (CLB) grants $500 to low-income families to help start a Registered Education Savings Plan (RESP) for their children. Families that qualify will also receive an additional $100 bond each year until the child reaches the age of 15, to a maximum of $2,000.
Bottom line: A new child will bring great joy to your family, and when wants or needs arise, you will want your finances to be in order. Whether you're in the initial stage of the planning process or already expecting, it's never too early to prepare for the cost of raising a child. After all, a new addition to your family is the best gift and the start of an amazing adventure.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.