Baby Makes Three: A Boomer & Echo Financial Makeover

Megan (28) and Aaron (29) have been married almost four years. They both have well paying jobs and are living the good life. They feel that since they have little debt, are meeting their retirement savings goals, and keeping up with the bills why not have fun with their excess cash?

They regularly surprise each other with gifts – hockey season tickets, expensive jewelry and electronics, take an annual winter tropical vacation and several weekend getaways. They feel it’s easy to justify as long as they’re not racking up credit card debt.

The couple had vaguely talked about having children sometime in the future. Things changed when Megan unexpectedly became pregnant. Their emotions are ranging from pure happiness and excitement to utter panic.

“Everyone’s telling us how expensive babies can be. I’m worried, no make that terrified, about being the only income earner,” explains Aaron.


“I get scared thinking about all the responsibility of taking care of a baby. I really like my job, but I’m torn between whether I want to stay home or return to work. And also, I’m getting that nesting instinct and I want to buy a house with a big yard. Can you raise a baby in a one-bedroom apartment?” says Megan. “Plus, I’m going to need a bigger vehicle.”

A Checklist For New Parents

Baby Makes Three: A Checklist For New Parents

Knowing that they need to make some changes early in the pregnancy is a good step. They don’t want this special time marred by money worries.

Here’s what these new parents can do:

1.) Do a budget analysis

Like many couples, Aaron and Megan took a stab at working with a budgeting app but were not consistent in entering their spending and never did a budget analysis. Now is the time to take a good hard look at where their money is going by reviewing the past six to twelve months of credit card and account statements.

Megan should explore how the maternity and parental benefits under the Employment Insurance program work and what additional coverage her employer offers, as well as all the benefit programs and tax credits the government offers.

2.) Reduce expenses

It makes sense to start living on one income now. By cutting back their monthly living expenses for the six months before the baby is born, they’ll be prepared to live off a reduced income. This will help them get disciplined about their discretionary expenses in advance.

In the meantime, they can use Megan’s income to build up savings and pay off their debts. They have $9,000 left on their student loans and $3,400 on Aaron’s car loan. They are committed to reducing their expenses and paying off these debts before the baby is born. That means paying an additional $1,300 (approximately) for the next six months.

The two are really motivated. They’re cutting back on restaurant dinners, books, clothes and all the extras that aren’t nearly as important to them as starting this new phase in their life debt-free.

There are lots of unknowns in terms of costs after the baby arrives, so having an extra couple of hundred dollars or so a month gives some wiggle room to their budget.

3.) Build up savings

Having a nest egg does more than support you financially. It brings down stress levels when you’re a new parent. They will need to put other goals temporarily on hold – including RRSP and TFSA contributions AND buying a house and new vehicle – and build up their savings.

Aaron is so right – babies can cost a ridiculous amount of money, especially in the first year. Megan should open up a High Interest Savings Account and set up automatic deposits from her paycheque towards a “Baby Fund.” Top up with anything extra – cashback rewards and rebates, spare change, anything sold online.

Buy (more) life insurance

Aaron and Megan each have basic life and disability insurance through their workplaces. It’s important now to top that up with individual policies to replace income until their child become an adult, as well as coverage for university if that’s their choice.

It’s also mandatory now to prepare wills and decide who will raise their child should anything happen to both of them.

5.) Preparing for baby

How much will they need to pay for the basics of their baby’s nursery? Megan is already drooling over the cute and appealing nurseries on sites like Pinterest. It’s easy to get sidetracked by expensive and, often, unnecessary stuff. She has to focus on what they actually need. The first year is often the toughest one financially.

There are lots of websites and “new mother” blogs that offer checklists of what a new baby needs and estimated prices. She should also ask the experienced Moms she knows for advice. They should try to buy on sale and perhaps also look for slightly used items. Babies grow so quickly that clothes and baby equipment have often just been used a few times before they’re outgrown and can look brand new. Don’t be too proud to accept hand-me-downs.

People love to buy baby gear. Megan should create a baby registry at a few stores to steer potentially generous friends and family toward the baby items she’ll need the most (avoiding the influx of adorable stuffed animals).

6.) Get a head start on university savings

It’s never too early to start saving for university. Tuition costs have been rising steadily every year. New parents can make the bill more manageable by setting up an RESP. Their money grows faster with the Canada Education Savings Grant that matches up to 20% of annual contributions.

Even if they can only afford small monthly contributions initially, it can add up quickly while giving tax-free growth. Contributions can easily be bumped up as their budget allows.

7.) To work or not to work

Sitting in the hospital together while cooing over their newborn is not the time to tackle the issue of staying at home or returning to work after maternity leave is up. Megan has at least one year of maternity leave to decide, but it does deserve careful consideration well in advance.

Lost wages from being out of the workforce means they will have to re-evaluate and adjust their spending and lifestyle, but it may make more financial sense than Megan thinks.

On the other hand, Megan has worked hard in her career and may very well want to return to work. Sometimes it isn’t only about money, it’s about fulfillment and career advancement. In that case, unless they live near kind-hearted family members who are willing to take care of the baby free of charge, alternatives are going to cost money. They will need to do some research to find out what child care costs are and check to see how daycare compares to hiring a nanny.

Final thoughts

For a couple, there is nothing in life equal to learning that they are expecting. But, children, while being one of life’s greatest blessings (most of the time), also cost money and consume a lot of time. Megan and Aaron will be experiencing the double whammy of a drop in household income (at least temporarily) and increasing expenses.

With some smart planning these new parents won’t need to brace themselves for financial struggles ahead and instead they can focus on enjoying their new baby.

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  1. johnm on March 31, 2018 at 5:07 am

    Unless they drive a two-door coup, their current vehicle will probably do just fine–most larger vehicles don’t really have much more USEABLE space in the back. Our family is perfectly happy driving around with 3 kids in our 2001 Toyota Echo. With the arrival of our third child, the trick was to find narrow car seats to fit in the back. We were able to fit one booster seat and two car seats. Ultimately, buy new car seats was a lot cheaper than buying a new car. 🙂

    • boomer on March 31, 2018 at 10:39 am

      You are so right, johnm. When we had our first child we had a VW Rabbit (similar to the later VW Golf), 2-door no less so it was a tight squeeze getting him into the car seat ( I knocked my head on the frame more times than I can remember). People tend to think they need the huge SUV but that’s not necessary for this couple at this time – maybe later on, but it would be a big expense for them right now.

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