Five steps to financial readiness for new parents
You have many memories-in-the-making to look forward to—first birthdays, ballet recitals, family vacations, soccer goals and graduations from kindergarten to college.
It’s expensive to raise and educate children, but as parents we want what’s best for them. Add up everything from daycare and diapers to music lessons, hockey gear and birthday parties, and you’ll be glad you planned ahead.
As well, unforeseen events can change everything in an instant. When your child is home sick it often means that you or your partner will miss work. Or if you become ill you may need some added support. That’s why contingency plans and easy-to-access emergency funds are so important, as they can protect your family and budget.
Take these five steps to make sure your growing family is financially prepared:
1. Rethink your financial plan. If you don’t have a plan, it’s even more important to create one
Start a baby-focused plan and take a fresh look at your spending priorities. Discuss income with your partner and understand the impacts of taking paid or unpaid parental leave, and single-income living.
2. Start saving
Set up a separate account or investment and deposit:
- The monthly Canada Child Benefit you’ll receive for help raising children under 18
- A percentage of your monthly income. Setting up automatic transfers make long-term, balance-building savings a lot easier
3. Save specifically for college or university
Post-secondary education can cost well over $100,000.
- Consider opening a Registered Education Savings Plan (RESP)
- The federal government adds 20% for annual contributions up to $2,500. That’s a free $200 for every $1,000 you save.
- Get baby a social insurance number (yes, while they’re still in diapers) and maximize your contributions
- Consider other savings vehicles, because depending on when you open an RESP, the $2,500 annual ceiling may not be enough. A Tax-Free Savings Account or non-registered account for funds will help your child be closer to debt-free when they graduate.
4. Plan for the unexpected
Thought you were too young to need a will? With baby added to your growing family, it’s time to draw up a will and review your estate plan. It’s unpleasant to dwell on, but you want to minimize the impact of an unexpected death and make sure your family is taken care of.
5. Protect your family
If you have a group plan at work, check your health, disability and life insurance coverage — you want to be sure you have enough coverage for your growing family. Take advantage of the full benefits, including any new parent information or services.
The best way to provide for your child’s long term financial security is to have your own finances in shape. The healthier you are financially, the better your child’s prospects. Congratulations — you’re a parent!
Read more on this topic:
Family planning: Financially, that is, The Globe and Mail
Five ways to save for your child's education – other than RESPs, The Globe and Mail
Ask us: What’s the best way to save for my kids?, Financial Post
Universal child care benefit (UCCB) for previous years, Canada Revenue Agency
So what does it (really) cost to raise a kid? Do your own math, The Globe and Mail
The crazy cost of daycare, Squawk Fox