The 5 financial planning steps new parents need to take

The 5 financial planning steps new parents need to take

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The nursery is ready, the closet is overflowing with tiny cute clothes, and all the cleaning essentials are strategically organized. Besides being an extremely happy moment, welcoming a new baby is also an exhausting and life-changing experience.
Luckily, there are always friends and family members ready to give advice (and hopefully a little hand!), along with tons of books and websites on parenting that make things a lot easier. Couples that are doing a newborn checklist or gathering information on the best parenting techniques have all kinds of information and resources at their disposal. After all, when getting ready to embark on this exciting (and eventually scary) adventure, preparation is key.
But between cute onesies and heartwarming ultrasound photos, there is one subject that often falls by the wayside: the financial aspect of bringing a new human being to the world.

The importance of financial planning

We know that most couples decide to have a child when they have proper emotional and financial stability. But having a baby must be understood as a long-term responsibility, especially from the economic point of view. It isn’t just about having a baby - it is mostly about protecting and sustaining his life until adulthood.

The financial side of parenthood isn’t the funniest aspect of it (at least compared to organizing a baby shower), but it is extremely important.
Even before he or she is born, your little newcomer is already the most important being in the world, and providing him/her with a stable and reliable safety net is a top priority. And what should that long-term safety net look like? For most families, it means providing a safe and stable home, along with all the opportunities the little ones deserve, from access to healthcare to higher education. Like we said: it isn’t easy. Especially if you consider how unpredictable life can be.

To help you navigate these challenges in the best possible way, we prepared a practical financial planning checklist for you and your partner. Keep in mind that making the necessary arrangements now will minimize stress down the road.

Ready to take some notes?

1. Establish a household budget. 

Here is the truth: having a baby is a beautiful thing, but it is also costly, even when you have health insurance. According to CPA, in Canada, a child usually costs between CA$10,000 and CA$15,000 a year until they turn 18. And that is just for covering the basic needs. If you count extracurricular activities (like piano lessons, football, or summer camp), babysitting, moving expenses, and celebrations, the expenses can rise significantly. That is why it is essential to establish a household budget, even before the baby is born.

So let’s start with the pregnancy period. We often hear new parents comment that they “overbought and overspent on everything” during these nine months. The excitement of becoming a parent can be financially dangerous, especially when there is no control over the household budget.

Establishing a budget to face these “upfront costs” is a smart decision to avoid overspending on unnecessary things. Just think about this: you will get plenty of cute toys and onesies at the baby shower. There is no need to overspend on this type of product, especially considering that they will only serve for a very short time.
Even if employment Insurance (EI) maternity and parental benefits provide you a reasonable degree of financial assistance, remember that it won’t last forever. Be smart with your spending and set boundaries.

The same applies to when the baby is born. The first year of a child’s life costs, on average, around CA$13,000, which doesn’t even include childbirth. With this in mind, try to plan your household budget efficiently, considering possible unexpected expenses, like traveling or health care. Figure out how your lifestyle must change in order to accommodate these new needs, and be as realistic as possible.

2. Increase your emergency fund.

When you start a family, you have to be well prepared to face potential “rainy days.” In financial terms, that means you need to increase your emergency fund. As your family starts to grow, you need to ensure your household can run smoothly, even in the event of job loss, illness, or a considerable unexpected expense.

In broad terms, it is prudent to have 3 to 6 months’ worth of expenses saved in your emergency fund. To develop an efficient emergency fund, the first thing you need to consider is your monthly income and fixed expenses. How much could you save monthly? Could you cut some futile costs (such as lunches out, gym membership, and other impulse purchases) to save more? If the answer is yes, make an effort. Having a reliable emergency fund is a must for any family, especially those that only count on one breadwinner.

And here is our last advice: if you ever get some extra money, save it. Instead of using your tax refund or a work bonus for shopping or planning a holiday, set it aside to build on your savings.

The best way to do it is by treating your savings like any monthly bill. As soon as you have the money available, transfer it to a specific savings account. The sooner it is saved, the less time you will have to feel tempted to spend it.

3. Start saving for educational expenses.

Is it too soon to start worrying about college? Not at all! Let’s look at the data: according to TopUniversities, you can expect to pay CA$6,463 per year for an undergraduate degree and CA$7,056 per year for a graduate degree. Now think about all the extra expenses related to higher education, from travel expenses to accommodation… quite scary, isn’t it? Providing a good education in Canada isn’t cheap. That is why it is advisable to start saving for college as soon as possible.

One of the easiest ways to do so is to start a registered education savings plan (commonly called RESP). In simple terms, a RESP is a tax-preferred savings plan designed to help you save for your child’s higher education. With this plan, the Canadian government will match 20% of your annual contributions up to $500 per year (with a lifetime maximum of $7,200) for each child. For families with more than one child, there’s even the possibility of opening a family RESP, which allows for several beneficiaries (as long as they are of blood relation or adoption).

RESPs are very popular, but there are many other options available. For instance, you can start a savings or investment program in your child’s name. It can be done through a guaranteed investment certificate, savings bond, mutual fund, or other investment choices.
Depending on your situation, there are many alternatives you can consider. Just don’t forget: the earlier you start saving for your child’s education, the more money you will have when the need arises.

If you need further information on the resources available to start saving money, visit Canada’s Government website for education. From setting up an RESP to understanding how provincial savings incentives work, you will find helpful tools to lead you in the right direction.

4. Write (or update) your estate planning documents.

Now that you have a child who depends on you, there is a not so enjoyable thing you should think about: your eventual passing. No one likes to plan for it, but the truth is that it is fairly important, especially when there are dependents involved. Unfortunately, being young and healthy isn’t a guarantee that anything bad will ever happen to you. Life is unpredictable, and things tend to change in the blink of an eye. That is why it is critical to have arrangements in place for your children.

To begin with, you need a will. This document provides a plan for the division of your assets and also designates a legal guardian for your underaged children.

Most people choose the surviving spouse as the beneficiary of their accounts, ensuring that all assets and money will be given to them. Nonetheless, you are also free to choose a separate estate guardian who will manage your estate until your children reach legal age. Whatever your wishes are, try to talk to potential guardians about your wishes before signing the papers. This way, everyone will be aware of their roles and responsibilities if the need arises.

If you already have a will, a new child’s birth is always an excellent opportunity to review it. Given this huge life change, you might have new specific goals or preferences for handling your estate distribution. To make all alterations correctly and legally, hire an experienced lawyer to guide you. It is imperative to ensure that these matters are rightfully handled.

5. Get life insurance.

Until now, chances are you never really thought about getting life insurance. That is quite common amongst the young and healthy group of the population or those that don’t have dependent family members. But now that you are restlessly thinking about baby names and the best color palette for the nursery room, your perspective is about to change.

Having a baby makes us realize how magical life is. And it makes us feel an immense need to guarantee protection, love, and a good future to those we love. But how can anyone guarantee that in such an unpredictable world? Well, life insurance is usually the best answer!

In its essence, life insurance has a simple purpose: to protect the people you care about in case something bad ever happens to you. It provides financial support to your surviving dependents, allowing them to preserve their lifestyle and pursue their life’s goals.

Even if they lose your income, your death benefit would cover daily expenses (including a mortgage), pay for childcare, healthcare, tuition, or any outstanding debt. Aside from that, your loved ones can use the benefit in whatever way they find suited. 

For new parents that don’t have a considerable budget, term life insurance is usually the smarter choice. This type of life insurance offers protection for a set period (usually 10, 20, or 30 years) in exchange for affordable monthly premiums. In fact, for young and healthy adults, term life policies can cost as much as a movie streaming subscription. At the end of the term, you can either decide to renew your policy or convert it to a whole life insurance plan. It is, as you can see, a very straightforward and affordable way to guarantee that your family gets the protection they deserve.

Here is how TermLite can help you!

Children are a wonderful gift, but they can also be a huge financial challenge. Ensuring that they will have all the security and opportunities you wish for them isn’t an easy task. Luckily, many tools can help you set the right bases for a happy and stable life. 

Life insurance is, like we already mentioned, one of the best resources on the list.

If you are interested in getting a term life policy to protect your family’s financial future, TermLite might be the right answer. We have many years of expertise delivering the best term plans to Canadian families like yours. That is why we managed to make the whole process simpler than ever. With us, you won’t need to go through medical exams, endless paperwork, or face-to-face meetings to get the desired coverage. You only need to fill a short quote form, discuss your goals with our friendly advisors, and answer a simple health questionnaire. Soon after, your insurance policy will be in your hands. It is as simple as that.

With TermLite, you can choose a term of 10, 20, 30, or 100 years, and get a coverage amount as high as CAD $1,000,000. If you wish to know more about our plans, don’t hesitate to visit our website or get in touch with us. In this moment of great happiness and change, we would love to be by your side!

Written by Diane Taes

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