My financial services practice focuses on helping clients navigate life transitions while planning for their future – from getting married, to buying and selling a home, to building a career and retirement. One of the most extraordinary changes in life is becoming a parent. I became a parent in my mid-twenties. And when I think back to all of the things competing for my attention - from learning to change diapers, sleepless nights and figuring out how to put the car seat in safely, I realized why finances wouldn’t be the first thing on someone’s mind. However, with a little planning you can ensure a strong financial future for you and your baby.
- Plan for maternity/paternity leave. Depending on how long you / your partner plan to take off work and whether your company tops up the government benefits, your household finances during this period can be significantly impacted. Have a solid understanding of your cash flow before the baby comes so you can prepare for it. If possible save enough to cover at least three to six months of your living expenses.
- Draft a budget. In addition to a potential reduction in cash-flow, babies come with plenty of costs so it’s important to have a budget. Set a limit on one-time purchases, such as a crib, stroller, car-seat and high chair. Consider buying used to keep the costs down. And be sure to factor in recurring costs such as diapers and child care so you have a good idea of what your monthly output will be.
- Update your will. Now that you have a dependent you need to ensure they will be protected, should something happen to you. Make sure you have an up-to-date will in place and name someone to be your child’s guardian. Beyond guardians, you may also want to name a trustee to oversee how your assets are handled if you pass when your child is still a minor.
- Get life insurance. Calculate any debts you have and the cost to get your child through to at least 18. This should be the new minimum for your life insurance policy. Life insurance calculators can help you find a more personalized number. If you already have insurance, be sure to update your beneficiaries to include your child.
- Fund the future. Although your income will now need to fund both yours and your child’s needs, it’s important to prioritize both retirement and education savings. Consider opening a registered education savings plan (RESP). You can contribute up to $2,500/year to the plan and the government will kick in a 20% grant ($500) for your child’s future post-secondary education (to a lifetime cumulative maximum grant of $7,200). Since all that money will grow tax-sheltered, by the time your child graduates high school, you’ll have built up a solid nest egg to pay for college or university. And speaking from experience, after putting three kids through university, I am thankful that we set up an RESP all those years ago.
While it seems like a lifetime away, in the blink of an eye your baby will be grown, so don’t put off taking the steps that will set your family up for financial success.