If you’re expecting a baby, it’s easy to get caught up in the joy and excitement of growing your family. You might find yourself daydreaming about baby names, planning the perfect gender reveal party, or regularly splurging on baby clothes (they are pretty cute). What’s something you might not be thinking about as much? Planning financially for your new addition.
It’s never too early to think about money. Even if you just found out that you or your partner is pregnant, it’s never too early to give your finances some serious thought. After all, raising a kid isn’t exactly a small expense. According to MoneySense, the average cost of raising a child until age 18 in Canada is about $243,660 (or over $12,825 a month). That’s no small amount!
Here’s the thing: that first year of your child’s life can actually be particularly stressful financially. Why? Because you’re having to buy big-ticket baby items (think strollers and car seats) at a time when your income may be slashed by parental leave.
So what can you do to make sure you’re in the best financial position possible when your baby arrives? Implement these 8 tips for preparing financially for your growing family.
If you’re eligible for employment insurance (EI) benefits, you can get paid a percentage of your average weekly insurable earnings up to a maximum amount. Specifically, you can get paid 55% of your earnings for 35 weeks or 33% of your earnings for 61 weeks. In either case, you can share these benefits with your baby’s co-parent.
If you’re lucky, your employer might offer additional parental leave benefits on top of what you get from EI. For example, your employer might top up your benefits so that you get paid more than the standard 55% or 33% (score!). Be sure to get the full details on your parental leave benefits so you can start thinking about what you’ll expect to bring home while off on parental leave.
Babies may be small. But they require a ton of gear that’s pricey enough to give you a serious case of sticker shock. To make sure that you can buy everything you need without pushing yourself to your financial limits, create a budget for baby items. Remember to account not only for the no-brainer, big-ticket items (like a crib and stroller), but also for the pacifiers, bottle brushes, and other small items that are easy to forget about. Identify how much you can afford to spend on each item so that you don’t burn through your savings before your baby arrives.
A single pack of diapers or a tub of formula may not be as expensive as a crib or car seat. But because you have to buy them regularly, it doesn’t take long for the costs to add up. Prepare for these extra demands on your wallet by creating a budget for the expenses you’ll have once your baby arrives. Include both baby expenses and other family expenses. And be sure to factor in any reduced pay you and your partner will receive while on parental leave.
When you have a child who depends on you, it becomes even more important to be prepared for any curveballs that life decides to throw at you. One of the best ways to do this is to set aside a portion of your monthly income for an emergency fund. Specifically, aim to have funds that could cover 3–6 months of your daily expenses. You may not end up needing the money anytime soon. But if your partner gets laid off while you’re still on leave, having an emergency fund can prevent you from facing a financial crisis while you’re still trying to adjust to your new family.
Babies are smarter than we give them credit for, but they can’t take care of themselves during the day. So if both you and your partner currently work, you’ll need to think about how you’re going to cover childcare responsibilities. Will one of you stay home from work after your parental leave ends? Or will you pay for childcare? You don’t need to settle on a firm decision now. But because childcare will be a major expense (whether it comes in the form of monthly payments or a loss in parental income), it’s helpful to start the conversation with your spouse early on.
Welcoming a new addition to your family is supposed to be a happy time in your life. So you may not want to think about the possibility that you or your partner might not live long enough to see your bundle of joy grow up. However, in the event that the unexpected happens, you’ll want to know that there’s someone to take care of your child and cover his or her expenses until adulthood. You can designate a guardian for your child by creating or updating your will. This way, you’ll get to choose who cares for your child instead of leaving it to the courts to make the decision for you.
It’s especially common for people to buy life insurance when they’re expecting a baby. Why? Because the purpose of life insurance is to protect the people in your life who are dependent on you financially in the event that you die prematurely. And when you have a child, you’re guaranteed to have at least one person who is financially dependent on you.
Although there are many different types of life insurance you can buy, term life insurance is the best bet for most families. It’s typically the optimal way to ensure your family is covered financially without being overprotected.
Having a child can be challenging because of sleep deprivation and change in family dynamics that come along with it. But welcoming a new addition to your home can also be stressful financially. The good news, however, is that when you take the time to consider your finances and prepare for changes in your income and expenses, it’s a lot easier to enjoy this special time in your life.