5 Financial Considerations When You Welcome a Baby to the Family
1. Re-visit your budget
Whether you already have a well-established budget or not, the arrival of a new member is going to change all that, substantially. You will receive financial support from the government that increases your income. Your list of expenses will grow longer that includes daycare, education, after-school programs, extra food, clothes, etc. You will need to re-visit your budget and update your spending and savings plan accordingly.
2. How to start saving without having enough income?
The secret of wealth accumulation is to spend less than what you make. Otherwise, it does not matter how much money you make, even celebrities can go bankrupt. There is a fine balance between enjoying the moment and planning for the future. You are the one who needs to define that balance. If you want to save more, the first thing to do is to list all your expenses into two categories: discretionary and non-discretionary.
Non-discretionary expenses are things like rent/mortgage, utilities, essential food, transportation, etc. Discretionary expenses are movie tickets, dining in restaurants, traveling, etc. Ways to create savings starts with discretionary spending. Reduce dining out which could be much more expensive than cooking at home. Watch more movies at home. Postpone some travel plans. There is not much you can alter when it comes to non-discretionary spending. What you can do (if you have not already) is to simply turn off the lights when they are not needed (which also helps our environment)
3. Setup a Registered Education Savings Plan (RESP)
RESP is one of the best benefits the Canadian government offers to families. By depositing 2,500 per year (around 210 per month) into an RESP, the government will provide the max grant of 500. The max annual grant is even higher for lower-income families. The max total government grant is 7,200 per child. Once the child goes to a Designated Educational Institution for higher education, they will be able to withdraw funds from their RESP to pay the tuition. If your friends or relatives are buying a gift for your children, it is not a bad idea to ask them to contribute the money to the children’s RESP account. Education matters and provides the opportunity to change people’s lives.
4. Review and update your financial plan
As a parent, you want to get the best things in the world for your child. The goal is to keep things in check, and make sure what you are doing now can maintain your financial health for the future, particularly in retirement. Take some time to review the major changes in your net savings, the investment return and risk objectives, and insurance coverage. Update your short-term and long-term financial plan accordingly.
5. Consider hiring an advisor to take care of your financial plan and investment
A report from the Investment Funds Institute of Canada highlights that “on average, investors who work with financial advisors have nearly three times the net worth and four times the investable assets of those who do not. This observation holds across all age groups and income levels.” An advisor added significant value to a household’s financial assets. “Advisors raise households’ savings rates and encourage households to behave in a more disciplined manner when the stock market drops significantly.” Advisors with great knowledge and experience can also free you from the stress and time consumption in investing and financial planning, so that you can focus on raising your child, enjoying family time, and achieving your dreams in life.
Author: Lynn Wang, MSc, CFA, CFP®, FRM
Author: Lynn Wang, MSc, CFA, CFP®, FRM
Bio: After graduating from Ivey Business School, Lynn worked at Citibank, Canada Pension Plan (CPP) Investments and TD before she joined iA Private Wealth as an Associate Investment Advisor. Lynn is passionate about empowering people and has been actively contributing to various communities such as CFA Society Toronto and Animal Rescues. She believes “You make a living by what you get, you make a life by what you give.”
Lynn lives by the motto: in the short run, life seems to be attributed to luck, but in the long run, life is a weighing machine on your efforts and hard work to continue learning and making the world a better place.
Disclaimer: iA Private Wealth Inc. is a member of the Canadian Investor Protection Funds and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.