Couples preparing for a new baby tend to have a to-do list as long as their little one's crib: Set up change table. Stock up on diapers. Buy bibs and soothers. But many don't stop to think about post-baby financial planning.
Experts agree there are crucial money moves all new parents should make for their entire family's well-being. Here are the top five to ensure your family's financial future is on the right track:
1. Budget.
"People don't realize how expensive it is to have kids," says G+F Financial Group branch manager Steven Hui, noting that raising a child until age 18 can cost upward of $150,000 to $250,000.
Steven Hui 9295-5X7With that kind of output, it's vital to budget, he says, especially since before having kids, couples become accustomed to frequent vacations and meals out.
"You use up a lot of discretionary income and get used to certain lifestyle," Hui says. "With kids it's challenging: people tend to overspend. You might not have time to cook so you order takeout. You want to buy your kids toys and clothes. All of a sudden it adds up."
Hui suggests being mindful of what you spend your money on. Keep track of your expenses, going over receipts once a month to see what's adding up unnecessarily.
Include in your budget money for the 10-percent rule: put 10 percent of all earnings into a separate bank account that you don't touch; consider it "paying yourself".
2. Contribute to registered education savings plans (RESPs)
The government of Canada contributes a yearly grant of 20 percent on top of your investment money, to a maximum of $500 per child per year. So for every $100 you put in, the government kicks in $20.
"Twenty percent is phenomenal," Hui says. "We all want to ensure our kids are educated. Right now tuition is about $25,000; by the time a child gets to be 18 it will probably be triple that. That's not including dorm and other costs."
The government's matching rate is higher for low-income families, jumping to 40 percent for families with incomes up to $35,000 and to 30 percent for those with incomes between $35,000 and $70,000 for the first $500 contribution.
Hui suggests asking grandparents and other relatives to put money toward RESPs too. Really, how many more toys do your kids — and our landfills — need?
3. Establish or update your will.
TOMCLOSE2Typically, if one parent dies, assets such as a home go automatically to the other through right of survivorship, says Edmonton lawyer Tom Carter, author of Write Your Legal Will in 3 Easy Steps. However, a good will also addresses the worst-case scenario of both parents dying. In that case, a will allows you to name an executor to be in charge of your property and money as well as your child's guardian — not the kind of stuff you want to leave dangling.
Without a will, money goes to the public trustee in the province you live in and has to be released when the child reaches age of majority, Carter says. Plus, your children might end up being raised by someone you wouldn't necessarily choose.
"The chances of disaster occurring are very slim, but you've still got to have something in place just in case," Carter says. "Statistically, it's not the most likely thing to happen but when it does it's a really nasty situation. It's so upsetting and fraught with worry and extra work."
4. Purchase life and disability insurance.
Having insurance is a crucial part of estate planning, says Hui, adding that term insurance isn't that expensive on a monthly basis. "Without good life and disability insurance, who's going to look after your kids?," he asks. "If something happens to one of the parents, how is their income going to be replaced? If you're a truck driver and you break your leg, how are you going to pay the bills?"
5. Have an emergency fund.
This applies to everyone, Hui says, but is especially important for a young family with so many financial pressures. Try to set aside three to six months' worth of living expenses and budget to replenish that money if you need to dip into it for things like major, unexpected house or car repairs.
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