What to Expect When You’re Expecting – The Money Edition
By: Carolina DaSilva
As part of the Living Richer Wealth Management team, I work with clients, helping them navigate many different life transitions. Now, with just a few months to go before I become a parent for the first time, I am getting ready for my own major life change, which is both exciting and terrifying. And while I know nothing can quite prepare me for parenthood, having a good understanding of the financial impact of starting a family can alleviate some of the stress. Below is a breakdown of some benefits and opportunities I’ll be taking advantage of. This blog post Mark wrote also has some great financial tips for new parents.
Impacts to your household income
If you are a working professional or business owner and plan to take parental leave, be prepared for your income to take a temporary hit. In Canada, parental leave benefits are available to both parents for up to 18 months (combined). In order to qualify you must meet the required 600 insured hours of work (although this limit has been lowered to 120 insured hours during COVID-19). The amount of benefits you’ll receive depends on the length of time you plan to be off and your income. For a standard 12 month leave, you’ll be eligible for a maximum of $595 per week (note: this amount is taxable).
Some employers offer a top-up benefit for either a portion of the leave, or in rare cases, the full leave. One thing to note is that if you pay for insurance benefits through your employer, you will likely have to continue these payments if you would like to continue participating in the plan.
Depending on your household income and how many kids you have, you may also be eligible to receive Canada Child Benefit payments. The payment amount will depend on the number of children you have, the age of your children, your marital status and your adjusted family net income in the previous year. At most, the payment amount will be ~$570/month per child (if your adjusted family net income is under $32,028).
There are also a number of other Federal and Provincial child benefits available that are mostly aimed at low- to moderate-income families. For a comprehensive guide of all benefits available, take a look at the CRA overview of child and family benefits.
Budgeting for Baby
With your household income going down at a time when your expenses are likely to go up, it’s a good idea to plan ahead and set some savings aside that you can access during your leave. Ideally, it would be best to have access to your pre-leave income in savings. For example, if you were earning $4,500/month (after tax) but will be earning ~$2,000/month (after tax), during a 12 month leave, aim to have $30,000 ($2,500 x 12) in accessible savings or liquid investments to access.
It’s always good practice to keep track of your monthly cash-flow (monthly income less monthly expenses), but it is especially important when planning for a significant change in income and expenses. Our team has put together an easy to use budget planner that you can access here. Estimate what your monthly household income and expenses will be once you are on leave to get a good idea of how much breathing room you will have on a monthly basis.
“Buy Buy Baby”
I put together this budget spreadsheet estimating the costs of setting up the nursery, newborn essentials I’ll need and the estimated costs we’ll incur during baby’s first year. These costs are just an average and can obviously vary greatly depending on the specific brands you purchase.
In my case, many of the newborn essential items are part of my registry and I have already received some as gifts from family and friends. I am also planning to keep costs lower by shopping second-hand (especially when it comes to things like newborns clothes which are not used for very long) and by accepting hand-me-downs from friends. There are some great options for second-hand shopping in Canada such as Value Village (which typically has a good maternity and babies section), Once Upon A Child, Facebook Marketplace and Kijiji.
Taking advantage of the promotions offered by baby brands and stores is another great way to keep costs down (my motto: “If it’s free it’s for me.”). Many of the larger baby stores offer discounts if you create a registry on their website (such as Buy Buy Baby, Babies R Us and Chapters Indigo). Huggies and Pampers also offer free diaper and wipes sample packs by simply registering through their website. I found this blog post to be very helpful in finding baby promotions in my area, while this blog post was useful in budgeting for monthly diaper costs.
Since I plan to take a standard 12 month maternity leave, I have not included the monthly cost of child care in my budget spreadsheet. This cost varies greatly between provinces and in metropolitan vs. rural areas. If you live in a metropolitan area, it would be a good idea to start looking into the monthly cost of childcare early and if you live in a competitive area, it’s smart to join a waitlist as soon as possible.
Conclusion
If you’re expecting or in the planning phases of growing your family, there are many things to consider and plan for. My hope is that this information can help you be best prepared for the financial changes that your family will experience so that you can enjoy the very special moments and memories you’re about to make.
Carolina da Silva is a Marketing Specialist with Raymond James Ltd. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The view and opinions contained in the article are those of the author, not Raymond James Ltd. Raymond James Ltd., member of Canadian Investor Protection Fund.
This blog post makes reference to third-party services. Raymond James Ltd. is not responsible for the availability of these external services, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered.