If you’re having your first child or adding to your family, you might be worried about the impact doing so will have on your pocketbook. The cost of all the diapers, onesies and teething toys you’ll need to buy in your child’s first year can be enough to overwhelm most parents, but the expense of raising kids adds up over a child’s life. In fact, in 2015 MoneySense pegged the cost of raising a child until the age of 18 at over $250,000 Canadian dollars. To help put your mind at ease, here are some ways to prepare before your new addition arrives.
You’ll never forget those first months at home with your newborn, but doing so can be costly. Employment Insurance Parental Benefits cover just 55% of your average insurable weekly earnings – which works out to a maximum of $543 CAD per week. While some employers offer additional benefits and top ups, your income while on parental leave is likely to be much lower than you’re used to. Make sure that you’ll be able to pay all your bills on your reduced household income. Put some money aside to help get you through your leave, or plan to cut back on expenses.
When you’re on a limited budget due to parental leave, the last thing you need is your car not to start one morning, or your basement to flood. While these problems would be challenging at any given time – they could translate into a lot of financial stress for new parents. If you don’t have an emergency fund, you’ll likely have to use your credit card to cover the expense and you might struggle to repay it. It’s better to have a robust fund that is enough to cover your expenses for 3-6 months to ease some of the stress.
If you currently live in a small apartment, having a child could mean that you’ll want to move in the next year or so. Sure, you might be able to make do with your one bedroom condo during the first few months, but once the baby starts walking – they’ll need more space. Make sure that you have prepared and budgeted for a move by ensuring that you’ll be able to cover moving fees or the down payment if you’re buying a new place. Don’t forget to factor in the added costs of maintenance, property taxes, and larger mortgage payments on your newly purchased home.
Even if you’ve saved extra money to tide you over during your parental leave, you’ll still have to pay for the costs of having a new or additional child once you’re back at work. The MoneySense estimate of how much it will cost to raise kids breaks down to over $13,800 CAD per year. Can your budget absorb the expenses of all the diapers, formula, and clothes? Many parents are able to cut back in other areas like entertainment and luxuries in order to make room for these added costs.
One thing that many families don’t think about enough is whether they have adequate life and disability insurance. If anything were to happen to you or your spouse, it could make supporting your family extremely difficult. That’s why it’s critical to be prepared and protect your family. While your employer might provide you with nominal life and disability benefits, neither is likely to be enough to keep paying the bills and support your family in the case of a tragedy. An insurance professional can help you ensure that you have enough coverage to protect your family.
Having kids is an important part of life, but so is being able to buy a home, pay for your kids’ post-secondary education, and save for retirement. It’s important to consider how having a child now will impact your financial plans. When it comes to retirement, being able to save money earlier means that you have to save less overall since compound interest helps you to grow your savings. That’s why it’s important to keep putting money aside even during those early years of parenthood. Make sure you don’t have to skimp on your retirement contributions in order to buy diapers or any other item your baby requires.
There is no doubt that children can be expensive, that’s why it’s so critical to take the steps above to prepare financially before having kids. Being prepared will allow you to enjoy the special moments with your children because you’ll feel confident that you’re financially secure.
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