Next to buying a house, raising children is a large ongoing expense for couples. Often both are experienced at the same time. If you’re renting a one-bedroom apartment, the upcoming birth of your child brings out the desire for a 3-bedroom house with a big yard.
I understand that not everyone wants kids, of course, but if you do, I don’t need to tell you about the benefits of starting a family. But children, while being one of life’s greatest blessings (at least most of the time), also cost money and consume a lot of your time.
Many people decide to have kids without a game plan in place (and there are those unexpected “accidents”), but there are lots of things you need to discuss when you decide to have children.
Are you financially ready to be parents?
Take, for example, a couple who are building their careers and making good money. They plan their budget accordingly, using both incomes to pay their bills and to support their lifestyle.
Would they be ready to experience the double whammy of a drop in household income (at least temporarily) and increasing expenses?
It’s hard to deal with a crying baby, sleepless nights and non-stop feedings and diaper changing without also worrying about money. That’s why it’s so important to make sure you’ve got enough savings to help get you through – at the very least – your baby’s first year. With some smart planning you won’t need to brace yourself for financial struggles ahead.
Before the arrival of your bundle of joy try living on one income and putting the second income into extra debt payments and savings. Not only will you have a bit of a cushion, you’ll be getting used to living on one salary.
Bringing up baby
So, how much do you need to pay for the basics in your baby’s nursery?
The first year is often the toughest one financially.
BabyCenter.com has a first-year baby cost calculator. It’s an American site, but you can plug in estimated prices by checking retailers like Babies “R” Us, The Bay and Walmart.
Several sites offer checklists of what you’ll need, including Expectant Mother’s Guide.
BabyCenter.ca also has lots of info and comments and tips from other mothers.
Buy on sale and don’t get sidetracked by expensive stuff. Focus on just what you need and, keep in mind that you can also look for slightly used items that a seller’s baby has outgrown.
Scour second-hand shops and ask for hand-me-downs. Check Kijiji and Facebook Swap & Buy groups. Babies grow so quickly, clothes and baby equipment have often just been used a few times before they’re outgrown, and can look brand new.
Lost wages vs daycare costs
Sitting in the hospital together while cooing over your newborn is not the time to tackle the issue of staying at home or returning to work after maternity leave is up. It deserves careful consideration well in advance of your baby’s arrival.
Many mothers choose to continue staying at home, and there’s been a rising trend of stay-at-home dads. Lost wages from being out of the workforce means you have to re-evaluate and adjust your spending and lifestyle. But, if you factor in all the expenses you’d be eliminating that would offset some income loss, it may make more financial sense than you think.
If you’re both going to work, discuss your childcare strategy ahead of time. Who’s going to care for your baby – a nanny, day care, relatives? Unless you live near kindhearted family members who are willing to raise your baby free of charge, the alternatives will cost money.
It’s best to do some research ahead of time to find out what child care costs are and whether you’re likely to get your child into a subsidized daycare in your area. Check to see how daycare compares to hiring a nanny.
Make sure you discuss and evaluate all your options.
Get the most out of benefits
Most Canadian parents are allowed up to 52 weeks off work to care for their new infants. To get the maximum benefits, be sure to apply for Employment Insurance as soon as you take your leave as it can only be claimed within the year following your baby’s birth. There’s a two-week waiting period.
Benefits are calculated at 55% of your gross income up to a maximum amount of $537 per week based on $50,800 worth of insurable earnings (2016).
Check your employer benefits too. Some offer partial income for parental leave. You may be able to continue with your health and dental programs if you pay the premiums.
There are some tax deductions, tax credits, and other benefits offered by federal and provincial governments. You may not qualify for all of these, but you’ll certainly be eligible for some. Make sure to apply as early as you can.
Effective July 1, 2016, the Canada Child Benefit offers monthly tax free benefits that are tied to income. The maximum is $6,400 per child under six and $5,400 per child aged six through 17. There’s a reduction when family net income is over $30,000, and again at $65,000 but the number of children you have also factors into what you’ll receive.
You may be able to deduct child care costs from your income on your personal tax return – up to an annual limit. Make sure you keep all your receipts.
Get a head start on university savings
It’s never too early to start saving for university. Tuition costs have been rising at almost 5% per year over the last decade. You can make the bill more manageable by setting up an RESP.
Make your money grow faster with the Canada Education Savings Grant that matches up to 20% of your annual contributions depending on your income. You may also qualify for a Canada Learning Bond – you can apply with your RESP provider or get more info at www.canlearn.ca
Final thoughts
In the end, the choice of having children isn’t really a financially rational one at all. It’s purely emotional.
According to MoneySense magazine, the cost of raising a child to age 18 is $243,660. But the joy of watching your children grow from babyhood to adulthood is priceless.
Further reading on Financial Planning for Couples:
A decade ago Canada launched Own the Podium to prepare its amateur athletes to reach medal finishes at the 2010 Winter Olympics in Vancouver. It later expanded to include a division for summer sports called Road to Excellence. The program has been incredibly successful, with Canada winning a record 14 gold medals at the Vancouver games, and most recently earning a top-10 overall finish in Rio with 22 medals.
Investing in sport is a controversial topic. Some argue that winning medals is meaningless, while others say it’s a huge source of national pride. Canada spent $116.1 million funding athletics in the four years leading up to Rio. Compare that with the $44.3 million in government funding received prior to the 2008 Beijing Games.
In my job fundraising for University athletics I get to see firsthand how sport can have such a positive impact on our student-athletes. Our school sent three athletes to Rio, plus two others who trained with our coaches in our facilities. That’s unbelievable, but it couldn’t happen without an investment in developing and training world-class athletes.
I’m lucky that I’ve had the opportunity to meet and speak with Olympic legends like Mark Tewksbury, John Herdman, and Clara Hughes who preach about the power of sport and why it plays such an important role in society. It goes beyond the playing surface; employers want to hire athletes because of their work-ethic and leadership skills.
Keep Owning the Podium, Canada! It’s money well spent.
This Week’s Recap:
On Monday I reviewed The Essential Retirement Guide and suggested a more realistic retirement income target.
On Wednesday Marie continued her becoming a better investor series with a look at socially responsible investing.
Switching things up a bit this week with a Throwback Thursday post on the electronic age and how technology has impacted the family home.
Over on the LowestRates.ca blog I listed five reasons why your car insurance company might drop you.
Weekend Reading:
A Harvard psychologist reveals the biggest reason people don’t achieve their goals.
Tim Cestnick offers postsecondary education planning tips for the family.
In a disturbing trend, young investors are day-trading ETN’s for the fun of the oil price roller-coaster.
Michael James debunks a report from The Fraser Institute that claims the average Canadian family spent $34,154 in taxes in 2015.
Yikes! At least 70 real estate agents in Calgary are still owed more than $1 million in commissions on the homes they sold before Discover Real Estate went bust.
Rob Carrick looks at the discharge fees banks charge when you make the final payment on your mortgage.
Nelson Smith from Financial Uproar says Kristy Shen and Bryce Leung didn’t get rich by avoiding the real estate market. In fact, they would have done slightly better had they bought a home in 2010.
As our homes get smarter it could become incredibly easy to spend money.
A fun look at how 25 Canadian websites looked in the Internet’s early days. The best one has got to be Eaton’s, circa 1996.
Fast-forward back to 2016 and these websites offer reliable answers to your financial questions.
An early retirement blogger shares his philosophy on money.
Companies are starting to sweat over rising costs as more people are opting to work longer and delay retirement.
Finally, here’s an excerpt from The Modern Couple’s Money Guide by Leslie-Anne Scorgie looks at the basics of financial housekeeping.
Have a great weekend, everyone!
When I was a girl one of my favourite cartoons was The Jetsons about a futuristic space-age cartoon family. Advances in home technology were just beginning and the Jetsons’ high-tech lifestyle was amazing to me. Who knew how quickly many those fictional advances would come to pass.
Related: Buying a home in 1974 vs. 2014
Television
Boomer kids were known as the TV generation.
TVs initially were like a piece of furniture, a small black-and-white screen in a wooden cabinet. Reception was from “rabbit ears” or an antenna on the roof. We got 3 channels and if you didn’t want to watch one channel, you hauled yourself out of the LazyBoy and turned a dial to change the channel manually (or forced your kid brother to do it for you).
The advent of VCRs allowed us to record a TV show and even watch movies we previously had to go to see at the movie theatre.
The latest generation of TV and Blu-ray technology is 4K – roughly four times the resolution of regular HD. OLED – organic light emitting diodes – also dramatically improves your picture quality.
Every modern TV is a “smart” TV with built-in wi-fi connections that can directly stream from Netflix or YouTube. Or, you can use Chromecast, Roku, or Apple TV. Oh, my!
Related: The 1980’s vs. today
Then add a remote control with voice control and gesture sensing (possibly not a good option for someone like me who talks with her hands).
At one time, equipping your living room for your visual entertainment was easy. All you needed to do was plug in the TV.
Today, the basic set-up of each component is more complicated and varied making it daunting to set up. When we bought our new TV, I knew we were in trouble when the sales associate recommended that a technician come to our home to set everything up for us.
Computers
When our oldest son entered high school in the early 1990’s, we were strongly urged to get a computer for his schoolwork. The whole set up cost us about $5,000 and looked something like this:
I could be wrong, but I don’t remember my kids ever using this computer, but it certainly was a new toy for my husband. He was on it all the time.
We had dial-up Internet with a modem and you could hear a pronounced squawk when the connection was made. Every evening I’d hear, “Don’t use the phone right now, I’m on the computer.”
Computer technology is improving day-by-day. Sizes have become smaller, processors are faster, LCD monitors are more comfortable on the eyes, and data storage is in the terabytes (if that’s not enough, you have storage in the cloud). They are only limited by their memory capacity and operating speeds.
Related: Toys that have stood the test of time
Wireless laptops and tablets are small in size and more flexible to use.
Software is being improved rapidly, giving us new features every day – too many to list here. And, do you remember when there was no World Wide Web?
Telephone
My parents had a rotary phone on a little table in the front hallway – black of course.
By the time I moved away from home, and then married, we had push button phones, but they were still attached to the wall outlet by the cord, so the phone companies recommended a phone for every room – for our convenience, of course.
Phones came in a lot of different styles and colours, and novelty phones were popular. My oldest son wanted a subscription to Sports Illustrated just so he could get a phone shaped like a football.
Home phones haven’t really changed much in style these days, except for being cordless. More dominant are mobile phones – iPhones and Android smart-phones.
These have all the power of a computer with mega-multiple apps and games. They feature upgraded cameras, Hi-Res audio, HD screens and 3D touch screens.
Final thoughts
You will notice that previously each “device” was it’s own entity. Now crossover among each device is not only common, it’s expected – watch a TV show on your tablet, take a video of your kids with your phone, have a slide show of your photos on the big screen TV.
Related: The family car – then and now
Electronics are getting increasingly smaller, more complex, and, yes, smarter.
- Your fridge can tell you when you’re out of milk and order more online.
- You can check on your kids from a video feed to your smart-phone.
- You can lock your door and set the thermostat and security system with your phone.
Knowledge, technology and improvements continue to accelerate at a pace that’s faster than ever. Nearly 40 percent of today’s toddlers regularly interact with gadgets with screens. Who knows what will be the norm for my grandchildren when they’re adults?
Personally, even with smart phones, smart appliances, and smart houses, I’m still waiting for Rosie, the robot cook and housekeeper.