Kate and Will may be expecting, but you can bet there was nothing ‘unexpected’ about that.
For the rest of us, well, whether it's your first ‘oops’ or an unexpected addition to your already existing family, nothing throws you for a loop quite like finding yourself in the middle of an unexpected pregnancy. Before you start scrambling for the perfect bassinet, make sure you sit down and take a serious look at your finances. While it's difficult to plan ahead after the fact, it's not impossible.
Here's a step-by-step plan to help you get a better handle on your bank account when you're expecting unexpectedly.
- Months 1 to 3 – Start a baby budget
If you don't already have a household budget, now is the time to start. Take the reigns and promote yourself to household CFO. First, define a realistic plan of action, taking into account everyone who's responsible for spending and generating income in your household. You're going to want to track your expenses closely for at least one month in order to understand your pre-baby cash flow.
At the same time, dig out your employment contract and start calculating your maternity leave compensation. Include any payouts you'll receive for paid maternity leave and unused vacation days.
Make sure you understand any government maternity/parental leave benefit programs as well. Find out if you're eligible and for how much on the Service Canada website.
Remember to factor in any extra income that you might be planning to generate by freelancing or picking up side projects during your leave. It's important that you err on the conservative side here, especially if this is your first baby. You might think that you'll be able to put in 20 hours a week freelancing, but that optimism could change significantly when you find yourself up at 4 a.m. with a hungry baby.
Once you have a better understanding of your expenses and your maternity leave income, it's time to do the math. Subtract your expenses from your maternity leave income. If your maternity leave isn't enough to cover your expenses, it's time to make some serious changes. You need to make sure you're bringing in more than you're spending. That unexpected bundle of joy is going to bring about an avalanche of unexpected expenses, so get ready!
- Months 4 to 6 - Pay down pre-baby debt
The only thing worse than paying interest on debt? Paying it when your income has been reduced. Make it your goal to pay down as much pre-baby debt now, before your bundle of joy makes its way into the world. The last thing you need to worry about is your outstanding credit card balance when you're waiting in the delivery room.
- Month 7 (ongoing) – Make your income last
Now is NOT the time to go on a spending spree. Instead, begin conditioning yourself to make the most of your money. This applies to all moms-to-be, including those that bring in a comfortable paycheque. Forcing yourself to abide by more frugal financial boundaries is the first step towards more responsible spending behaviour.
Moms-to-be should also make the process of saving money a mindless one, in order to further improve their financial foundation. Now is the time to put habitual and automatic savings systems into place. Contact your bank and request an automatic transfer from your chequing account to a savings account set up specifically for baby expenses. The idea behind this is simple: if you never see the money, you'll never have the opportunity to spend it.
- Months 8 and 9 – Think long term
Organizing your finances for baby's arrival is just the start. You're going to want to keep healthy savings habits going by planning for future daycare expenses, insurance needs, post-secondary savings, ongoing medical costs – the list goes on.
Fortunately, there are some tax benefits associated with having kids. For example, you may be able to claim the Canada Child Tax Benefit in order to help cover some of the costs of being a parent. Consult with your financial advisor in order to better understand potential tax credits and write-offs. What's more, make sure that you name your new child as a dependant on your insurance plans as soon as possible. Keeping your paperwork in order right from the start will ensure that your family is protected in the case of an emergency.
Nine months of action
In short, celebrate your bump - but also gear into action. Don't let anxiety ruin news of your new arrival. Make the most of your pregnancy by reviewing your finances and planning for the future. There’s a reason you were given nine months…
GoldenGirlFinance.com is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.