Becoming a new parent is extremely emotionally rewarding, but it can come with financial strain. Not only will your income be reduced while your off work, but there will always be costs you didn’t anticipate, which could strain your budget.
Since the cost of raising a child can be significant, it’s best to have some kind of financial plan in place. Admittedly, you won’t be able to account for every single expense, but by being proactive with your family’s finances, you can handle any surprises that will eventually come your way.
This article will cover:
How to budget for a new arrival
Managing changes in housing costs
Maternity benefits you should know about
Healthcare and insurance considerations
Investing in your child’s education
Preparing for childcare expenses
Budgeting for a new arrival
Whether you’re a new parent or thinking of having a child, creating a baby budget will give you an idea of your ongoing expenses. First, you must factor in one-time expenses, such as a crib, car seat, and stroller. You’ll also need to consider ongoing expenses, such as diapers, clothes, and potentially formula, as these will impact your monthly budget the most.
To help offset these upcoming costs, some families create a savings account dedicated to baby-related expenses before the child is even born. This allows them to draw on funds without affecting their regular budget. That said, it’s best to adjust your monthly budget to account for a little one and look for ways to save.
Instead of buying diapers from a store one at a time, consider getting a subscription, as the costs are lower, and they get delivered right to your door. You can adjust your subscription as needed, so there’s no fear of having too many diapers. In addition, you could always buy the one-time items second-hand, as there can be significant savings.
Housing costs
As your family grows, you might need to reassess your housing needs. Living in an apartment with a baby is possible, but you’ll likely need more space as your child grows. New housing options, such as a multi-bedroom unit or full-sized home that can grow with you, might be worth investigating. Of course, getting a bigger home also means spending more, so that’s another line item you would need to adjust on your budget.
If you do pursue a larger home, consider turning any extra space into an income generating space like a private room or basement apartment. This could help your family manage expenses.
Maternity benefits
If you’re thinking about having a baby, the first thing you should do is check what parental benefits you and your partner’s employers offer. Some employers will offer a top-up for a few weeks. That’s where your employer will give you additional funds on top of any employment insurance you’re collecting. Top-up benefits are great since they allow you to earn more income even when you’re not working.
Even if your employer doesn’t offer parental benefits, you may still qualify for Employment Insurance (EI) benefits. If you worked at least 600 hours in the 52 weeks before your leave starts, you can receive up to 55% of your earnings, with a maximum payment of $668 per week. The benefits of 15 weeks of maternity leave apply to the person giving birth, while up to 40 weeks of parental benefits can be shared between the parents. Extended parental leave allows you to share up to 69 weeks of EI benefits, but the benefit cap is reduced to 33% of your earnings, up to $401 per week.
Another potential income source is the Canada Child Benefit (CCB). This tax-free monthly payment is available to eligible families. The amount you’ll get depends on your number of children, their age, and your adjusted family net income. This benefit is designed to help those in need, so if you make a higher income, you may not receive any funds from the CCB.
Healthcare and insurance
The good news is that expecting parents likely won’t have to pay anything out of pocket, as long as they have provincial health care. This means there are no costs associated with any visits to your doctor and the actual hospital visit for the birth. That said, there are some optional tests that you can pay for. Some expecting mothers may also choose to pay for vitamins, a midwife, and parenting classes.
One optional cost that’s worth considering is life insurance. Many people get life insurance when they have a child as it provides a lump sum benefit that can help support their spouse and child in the event of the unthinkable. Life insurance is relatively inexpensive if you’re young and healthy, so it can be a good investment that gives you peace of mind.
Investing in your child’s education and future
To encourage continuing education, the government of Canada allows people to set up a Registered Education Savings Plan (RESP) for children. This account is an incredible tool, as capital gains and interest earned are tax-free. The money will be taxed when your child eventually withdraws the funds to pay for their education. However, most students will be in a low tax bracket, so any taxes owed will be minimal.
Another huge advantage of RESPs is the Canada Education Savings Grant (CESG) of 20% on the first $2,500 contributed annually, up to a maximum of $500 per year. The lifetime CESG cap is $7,200, but if you invest the grant and contributions, that amount could quickly grow. The key is to invest early and regularly so the money has time to grow interest and compound.
Our specialist will ensure you get all the grants you're entitled to.
Childcare expenses
The government has prioritized $10-a-day childcare in the last couple of years. Deals have been struck with provinces and territories to provide sustainable funding for affordable child care.
While these programs won’t leave parents with a financial burden, not every daycare offers these rates, and there are not enough daycare spots in many cities. If you’ll need daycare, it’s best to start searching early and get on a waitlist.
Signing up for multiple daycares will keep your options open so if one care-provider doesn’t work out, you’ll already be on track for another. Home-based daycares are typically cheaper than professional centres but have limited space. Another option is a nanny, but they’ll cost you the most.
Unless you can secure low-cost childcare, budget roughly $1,500 – $2,000 monthly. These costs will carry over until your child is in school. Even when they start kindergarten, you may still need to pay for before- and after-school care.
Final thoughts
Many parents will find money tight despite how old their kids are. To ensure you can focus on the important aspects of parenthood, take the time you need to plan financially for the new journey. Life will always present unexpected challenges so be open to making tough budgeting decisions to stay on track. Preparing your family to manage the unexpected by re-evaluating your budget, taking advantage of employer and government benefits and saving early and often for their education are just a few ways you can adapt to new day-to-day expenses.
Barry Choi is an award-winning personal finance and travel expert. He regularly appears on various shows in Canada and the U.S., where he talks about all things money and travel. His website - Money We Have - attracts thousands of visitors daily, looking for the latest stories on travel and money.
