Whether you’ve decided to start a family, or a family has just decided to start (hey, things happen), you’re probably worried about money.
They’ll all warn you how expensive diapers are, but they’re really not that bad. I spend about $2 a day to keep my two kids in brand name diapers.
The real expense comes in the form of lifestyle changes. If you live in an apartment or urban area, you might be considering buying a new home. You might need a new car to fit your precious cargo, and all the cargo that comes with it. And childcare is a big expense that can make a dent in any budget.
If you’re planning to take leave from work, all of these big expenses might come up while your income is greatly reduced. In Canada, maternity and parental leave are paid by employment insurance (EI). You’ll get 55% of your regular earnings, but only to a maximum of $547 per week. There’s also the Canada Child Benefit, which pays up to $533.33 per month for children under 6 depending on your income in the previous year.
Start with your budget and saving goals
Yes, it’s expensive; but it’s doable. And you can make it easier on yourself by planning ahead.
Start by writing out a budget. You might find it helpful to divide it by time period, as you’ll have different levels of income and different expenses now, during pregnancy, after the baby comes, and after childcare becomes necessary (typically, but not always, when parents return to work).
This exercise will help you get an idea of how your finances could look over time. It’s also a chance to think through some of the bigger expenses like whether you can get by with your current car, or how much strollers actually cost. Make sure to account for your adjusted income, regular living expenses, and any big-ticket items you think you’ll need.
Once you’ve worked out your budget, it’s time to set some savings goals. Maybe you will have a small shortfall in your budget, and need to save enough to cover the difference. Maybe you have a few large purchases to save up for. Once you factor in your timeline, you can work out how much you need to save on a regular basis to meet your goal. For example, if you have one year to save $1,200, you need to put away $100 a month.
Take advantage of savings programs
Saving money can be difficult, but there are tools you can use to make it easier and help grow your money faster.
The quickest and easiest way to save money is with a high interest savings account. These bank accounts pay much more interest than regular savings accounts, so your money can grow faster. Look for an account that pays a high interest rate (aim for at least 2%), and that doesn’t charge any transaction fees.
If you have more time to save, you might want to look into a guaranteed investment certificate (GIC). These are really safe investments that lock in your money for a set period of time in exchange for a guaranteed payout at the end. They won’t grow as much as some other investments, but the tradeoff is you will know exactly what your investment will be worth. GICs can also help you keep your hands off your money if you’re tempted to withdraw from your savings to pay for other things.
If you’re willing to take some risk, you can also consider investing your savings in other vehicles like stocks and bonds. There are services called robo-advisors that make it really simple and inexpensive to build and manage a well-diversified portfolio. These kinds of investments carry risk and are best used if you have a longer time horizon with which to save.
Many of these investment options are available as tax-free savings accounts (TFSAs). TFSAs allow you to invest your money in a number of ways (including in the markets) without having to pay tax on your investment income. There are some TFSA rules you should be aware of, but if you’ve never opened a TFSA before and you’re not planning to save tens of thousands of dollars, you’re not likely to run afoul of any rules.
Your full financial picture
There are a few other things you can do to get in good financial shape when you’re planning a family.
The first is to sign up for a rewards credit card. Whether you choose travel rewards or cash back, you’ll be able to earn a lot of value in points or cash back by making the purchases you would have anyway & especially if you’re planning to buy some more expensive items. Just make sure to pay off your balance in full each month, or credit card interest will quickly eat up any value you earn in points.
This is also a good time to check on your mortgage and other lines of credit. Lenders like to see stability, and there’s a chance you could run into problems with your mortgage renewal if your income is lower than when you got your mortgage. Check with your mortgage broker to see if there’s anything you can do now to prepare.
Any savings helps
The most important advice I can give is just to start. Even if you can’t save as much as you think you’ll need, saving a little bit is better than saving nothing at all. Just $20 a week will grow to be worth over $1,050 in one year in a high interest savings account paying 2.30% interest.
It’s easy to start saving money when you’re planning a family. See how your upcoming lifestyle changes will affect your budget, set a savings goal, and start saving money. It’s that simple.
By Jordan Lavin for RateHub.ca