Being a first-time parent is an exciting time, and the nine months leading up to the birth of your first child are filled with preparations to make sure he or she will have everything they need once they arrive. A large part of this preparation is financial, and it requires some adjustments to your budget.
There are many new expenses that come with a baby: strollers and car seats, clothing, diapers, formula, and the list goes on. While it is rewarding to provide for your child, it can be overwhelming if you haven't planned for all the new expenses. Follow these tips on how to financially prepare for a new baby so you can spend less time thinking about your expenses, and more time enjoying the new addition to your family.
Be financially prepared for the unexpected
Once you have a child, you have to take care of yourself in a new way. You are no longer only responsible for yourself; you are responsible for providing your child with what he or she needs, and making sure he or she is protected in any situation. This means being prepared for anything. Life can throw us curve balls, but if you have taken the proper precautions, it will be easier for you and your new family to persevere through the hurdles.
First, make sure you keep an emergency fund of three to six months’ worth of expenses. Generally, maternity or paternity leave only covers your salary for a portion of the year, and expenses can become tighter during this time. In the case that your partner is suddenly unable to work or you have to pay for an unexpected expense, you’ll have some cash put away that you can easily dip into if necessary, while keeping on top of your regular payments.
Next, make sure you have sufficient life and disability insurance. No one likes to think about the bad things that can happen, but ensuring you have proper insurance in place will guarantee some financial stability and that your child will be taken care of, even if something happens to you or your partner. The importance of insurance should not be overlooked, especially when you have a child that is counting on you to provide for them in any situation.
Lastly, make sure you have an updated will. Now that you have a child, you want to make sure they are ultimately cared for even in the worst case scenario. Choose a guardian who would take care of them should something happen to you and your partner. Selecting someone who is close to the child and has similar parenting values and philosophies is ideal. Consider your assets and who would take care of them until your child is of age, and also what would be done with any debt you may have. Make sure to update beneficiaries on any outstanding accounts accordingly.
Start saving for education
Seasoned parents will tell new moms and dads to enjoy the baby days while they last, because before you know it they’ll be grown up and going to college. While this is not top of mind when you bring your child home from the hospital, and he or she is many years away from post-secondary schooling, it is a good idea to start saving for your child’s education as soon as you can.
In Canada, the average cost of four years of post-secondary education is $66,000. Aside from tuition, this includes living expenses if your child will be living at school, travel costs if they will be commuting or flying home for holidays, and laptop and textbook costs. That’s a lot of money to come up with when your child is only a couple years away from university or college. Putting aside some money each year will ensure you’re not financially stretched when the time comes to make that first year of payments.
To make the most of your savings, consider opening a Registered Education Savings Plan (RESP) soon after your child is born. With the Canada Education Savings Grant (CESG), you could receive a government grant of 20% of your RESP contributions, subject to a maximum of $500 per year and a lifetime grant limit of $7,200. This grant is available until your child turns 17. Remember to keep investment costs low: a savings of 1% on the above scenario could mean an extra $8,000 in your portfolio when your child goes to school.
Look for ways to save
With a new baby, you’re likely going to be on a restricted budget and will have to be smart about where you spend your money. Costs can add up quickly, especially when you’re tempted to buy the latest products on the market.
For example, these days, strollers are designed to be comfortable, portable, flexible, and fashionable. This is great for your baby, but not great for your wallet. Since equipment like strollers are used for a very short period of time, look for great deals on websites like Kijiji or VarageSale.com. Chances are they will be lightly used, and you can save hundreds of dollars that could be put towards necessities for your baby, or saved in an RESP.
Since you won’t be the only one excited about the new addition to your family, and your family and friends will want to spoil your child just as much as you will, you will likely get a lot of gifts you don’t need, or some repeat items. Take whatever you don’t need and return it for a store credit that you can use towards things your child may need later on. When shopping, look for this season’s sales for clothes that will fit your child when that season rolls around next year. This way, you’ll already be prepared for upcoming warmer or colder months, and you may be able to save 50% off on a winter coat or new boots!
Welcoming a child into your family is one of the most exciting times of your life. Making sure you’re financially prepared before he or she arrives will ensure you don’t need to worry about your budget, and can focus all of your energy on spending as much time with your little one as possible.
VP of Investments, Josh Miszk, talks more about financially preparing for a baby in his interview with CFRA radio.
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