Young couple expecting a baby

Having a baby? Here’s what you need to consider

Having a baby is joyous, but it also comes with a whole set of costs ranging from diapers to daycare to education savings. You can rest assured, however, that the added costs don’t have to add a layer of stress to your sleepless nights. It just takes careful planning and preparation for your new reality: that an increase in fun comes with an increase in expenses.

We’ve put together a list of some of the financial considerations new parents should make when planning for and after having a child.

Increase in costs

Once you know a baby is on the way, it’s easy to get carried away with all the upfront costs like a new stroller, highchair, car seat and other big-ticket items. Thankfully, you can spend as much or as little as you want on these items, so budget carefully and plan ahead to watch for deals. Spending within your means might mean avoiding high-end luxury items (yes, luxury strollers are a thing!) and sticking with ‘generic’ but still high-quality brands. With a robust second-hand economy for baby gear, the seriously frugal spender might even consider purchasing used.

Beyond the upfront costs, new parents can also expect their monthly costs to increase with the addition of diapers, formula, clothing and other items that infants tend to go through quickly. Again, it’s important to anticipate these costs and budget for them ahead of time to avoid sticker shock when you’re knee-deep in diapers and seriously lacking sleep.

Decrease in monthly income

In Canada, parents now have the opportunity to stay at home with their infant for up to 18 months. What this means, however, is the income hit to the family finances during this period will likely be larger. This is something that must be considered during the budgeting process, and also when it comes time to decide how much time each spouse takes off to care for the new arrival. For instance, it might be wise for the lower-income earner to take the majority of time off to lessen the income hit.

Another aspect to consider when it comes to income and division of benefits between parents is employee top-up. If, for instance, one parent received a top-up on their parental leave benefits, it could make sense for that parent to stay at home for a longer period of time.

Saving in an RESP

 A Registered Education Savings Plan (RESP) gives parents the benefit of saving for their child’s education with a bit of help from the Government of Canada. Specifically, the government will match money contributed to the RESP up to 20% up to a maximum of $500 per year. In other words, if you contribute $2,500 in one year, the government will provide a grant of $500, bringing your savings for the year up to $3,000. 1

 The added cost of daycare

Daycare isn’t an expense to be taken lightly. In fact, in large cities like Toronto, parents can anticipate paying around to $1,800 per month to place their infant in daycare. Typically this expense won’t occur until the parent on leave returns to work (commonly after one year), but it’s a large expense to anticipate and prepare for in your budget.

When it comes to planning for a baby, preparation is key. Plan ahead, set aside a reserve fund for emergency expenditures, and take the time to focus on what’s most important – your new arrival!

 

Disclaimer:

This article contains general information targeted towards a Canadian audience that may not be applicable to you.

Foresters Financial and its representatives do not offer tax, legal or estate planning advice.

 

Sources:

  1. http://www.cst.org/en/resources/are-you-maximizing-your-resp-education-grants
  2. http://www.cbc.ca/news/business/child-care-costs-1.4443290

 

416377 CAN/US/UK (05/18)

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Pira Kumarasamy

Pira Kumarasamy, is a Toronto-based freelance writer and communications consultant in the financial space. She has a background in economics and enjoys making complex financial topics relatable to the average Canadian. Her areas of interest include financial markets, student loans and real estate. You can reach her on Twitter (@PiraKumarasamy) or LinkedIn.