Financial Must-Dos When Preparing For Baby

As you prepare to welcome a new baby, your to-do list may feel endless nursery decor, baby gear, packing your hospital bag, and, if you’re anything like I was last year, explaining to your toddler that a baby sister is on the way. Amidst all these tasks, financial preparations might seem secondary. However, addressing a few critical financial steps both before and after your baby arrives can lay the foundation for your child’s future success. Fortunately, many of these tasks can be managed online during nap times. From budgeting for baby essentials to planning for future expenses, here’s a guide to help you navigate the financial landscape when preparing for a baby.

Before the Baby Arrives

1. Revamp Your Budget

Children are a significant financial commitment. StatsCan estimates that raising a child from birth to age 17 costs nearly $300,000. Therefore, revising your budget to accommodate this new expense is crucial. Consider both one-time costs such as baby gear, nursery furniture, and outdoor equipment, and ongoing expenses, including diapers, food, formula, childcare, and extracurricular activities.

I found considerable savings by purchasing secondhand items through local mom groups, thrift stores, and platforms like Rebelstork, and by borrowing from friends. Despite these savings, costs can still add up. Additionally, if you plan to open an RESP (Registered Education Savings Plan) or other savings accounts for your child’s education, budget for these as well. Consider how parental leave might affect your income and take advantage of benefits like the Canada Child Benefit to help offset these costs.

2. Secure Your Life Insurance

When we had our first child, my husband and I already had life insurance to cover our mortgage in case of an unexpected death. Many prioritize obtaining life insurance upon having children to ensure their financial security. The most common type is term life insurance, which involves paying a monthly premium for a set period (usually 25 years). If you pass away during this period, the policy delivers a lump sum charge to your beneficiaries.

The cost of premiums varies based on policy size, age, and health. Use online calculators to determine the coverage you need and its cost. You can do this through brokers, banks, or online services like PolicyMe.

Action Steps:

• Evaluate your life insurance policy to confirm it offers adequate coverage.
• Update beneficiaries on your insurance policies and financial accounts.
• Consider adding or increasing disability insurance coverage.

3. Create or Update Your Will and Power of Attorney

Creating a will becomes even more critical with the arrival of a child. A will outlines essential decisions regarding the distribution of your assets, who will act as your estate executor, and who will care for your children and pets. You can designate guardians for your children and decide when they should receive their inheritance, which might be at ages 21 and 25, rather than the default age of 18.

Without a will, government formulas will decide the distribution of your assets, which could result in delays and complications. Making or updating your will gives you peace of mind, knowing your children will be cared for if the unexpected happens. Additionally, creating power of attorney documents is vital. Choose someone to make decisions on your behalf if you are unable to do so yourself.

Action Steps:

• Consult with an attorney to create a will and estate plan.
• Designate guardians for your child and outline how you want your assets to be distributed.
• Review and update your estate plan regularly.

4. Set up a Registered Education Savings Plan (RESP) for Free Government Money

Post-secondary education is a major expense, but the Canadian government offers a helping hand through the Registered Education Savings Plan (RESP). Parents can contribute up to $50,000 per child, with the government matching up to $7,200. Interest earned within the account is tax-free.

I set up an RESP shortly after my daughter was born and have accumulated thousands through regular deposits, gifts, and government matching. When our second daughter arrived, I switched to a Family RESP, allowing the savings to be shared. Remember, you need your child’s Social Insurance Number (SIN) to open an RESP, which can be done through banks, companies like Embark, or fintechs like Wealthsimple.

Additional To-Dos

Once the major tasks are completed, don’t forget these smaller, yet essential tasks:

• Register for a SIN: This is necessary to open an RESP.
• Register for the Canada Child Benefit: This non-taxable monthly payment is usually set up automatically when you register your baby’s birth with your province.
• Update Beneficiaries: Review and update beneficiaries on your registered accounts like RRSPs, TFSAs, and life insurance policies.
• Add Your Child as a Dependent: Update your workplace benefits plan to include your new child.
• Explore Tax Benefits and Credits: Research potential tax breaks, such as the Child Tax Credit and Dependent Care Credit, and ensure you’re taking advantage of any financial benefits.
• Build or Replenish Your Emergency Fund: Aim to have three to six months’ worth of living expenses saved. This safety net will provide peace of mind in case of unexpected expenses or changes in income.
• Plan for Parental Leave: Understand your company’s parental leave policies and plan how you’ll manage financially during your leave is unpaid or partially paid to reduced income during this period.

Planning in finance is a powerful tool. Even if you tried to open an RESP before having children (as I did, only to find out you need children to do so), setting up these financial safeguards ensures a secure future for your little one. Completing these tasks provides the confidence and stability needed to help your child thrive. The cost of neglecting these financial essentials is simply too high.

Conclusion

Preparing for a baby involves careful financial planning and proactive measures. By creating a budget, building an emergency fund, updating insurance policies, and considering long-term savings, you’ll set yourself up for success. Remember, a solid financial foundation will allow you to focus on what matters most welcoming and nurturing your new baby. Embrace these steps with confidence, and you’ll be well-prepared for the exciting journey ahead.