​Real Talk: How to financially survive having a kid

Death. Divorce. Job loss. Sometimes tough stuff happens. Unfortunately, these not-so-great milestones often come with a financial impact. So, what do you do if you have to get a divorce? Or if a loved one suddenly passes away? Or if you find yourself with more debt than is comfortable? In our series, Real Talk for the Tough Stuff, we’ll tackle some of these situations head-on with the honest financial advice you need to get through and get on with life. 

Next up, Real Talk for the Tough Stuff: How to Financially Survive Having a Kid

Having kids is a life changing experience. There’s the emotional side to literally creating life and all that entails—whose nose will your future progeny have? What colour to paint the nursery? Names?! But on the other side of this wonderful time is a very real and practical consideration—the financial side of having a kid.

To help put things in perspective—and provide solid tips and advice—we called in an expert, Maxine Rice, Branch Manager, Advance Savings Credit Union, Petitcodiac Branch.

Maxine’s first piece of advice? Plan early. “As soon as you know you are expecting, start planning and getting things in order before you’re sleep deprived and can’t think!” Rice says, only half-joking.

Employment Insurance (EI) benefits cover 55% of your income (up to a maximum of $51,700 or $547/week) while on parental leave. Knowing that your income is going to be almost halved is a big adjustment. But luckily you have a few months—nine to be exact—to do a little bit of advance planning.

In terms of putting your finances through their paces, Rice recommends a little experiment: As soon as you know you will be welcoming a little bundle of joy into the world, adjust your budget to survive on only 55% of your income and put the other 45% aside in a savings account. Not only will this help ease the financial adjustment you’ll soon be facing anyway, but the money you save leading up to parental leave will help you financially get through once you have to start buying diapers.

“You’re going to have to learn how to adjust your budget anyway, if you do it early and save a little extra it will make things easier once your baby has arrived,” says Rice.

But adjusting your budget is only one aspect of your financial picture. You’ll also need to think about other things like life insurance, getting (or adjusting) a will, filling out tax and other government forms and looking into your health benefits. Not only will you need to add your new bundle of joy to your health plan (assuming you have one), but it will be important to check in on your benefits during parental leave. Not every company or plan covers you while you’re off in the same way as when you’re working fulltime. It’s good to be aware of any additional costs so you can budget accordingly.

Pre-baby is also a great opportunity to have a sit down with your financial expert to have a solid plan in place both for how to manage your finances while on parental leave and once leave is over.

“Because you’re looking at an income reduction, it might not be possible to save in the same way you’re used to,” says Rice. “Plus, there are other things to start thinking about once you have a baby, like Registered Education Savings Plans (RESPs).”

It’s also good to have those financial conversations early in case you start to get into financial hot-water once your new bundle of joy has arrived. Babies can be expensive—Rice estimates the cost of raising a child from infancy to the end of high school is around $250,000, not including university tuition—and managing more expenses on a reduced income can sometimes lead to a difficult financial situation.

“Don’t wait until you’re already in a tough spot. This can be a difficult transition, but there are always things we can do to help ease into it. Talking to somebody sooner rather than later is always better. It’s much easier to avoid a tough financial situation in the first place than to work to get out of one,” advises Rice.

So, let’s say you’ve planned. You’ve budgeted and saved and finally the big moment has arrived. You’re now a parent! Now the real financial adjustment kicks in.

“I always try to advise new parents not to get carried away with new purchases. Everybody wants to have all the things with all the bells and whistles, but a lot of it you’ll only need for a month or two,” says Rice. “Ask other parents to swap or try to find second hand things, if possible.”

Something else to consider is daycare. A lot of daycares have a substantial waitlist, so looking into daycare early means you’ll have a plan in place when and if the time comes to go back to work. Daycare can also be expensive, so you’ll need to figure out how it works within your budget. There are daycare subsidies available, so it’s always a good idea to check to see if you qualify.

“Depending on the daycare, the cost per month can be as much as a mortgage payment,” says Rice. “I’ve started to see a shift with more people opting to stay home longer because the cost of daycare is so high it just doesn’t make sense financially.”

It’s not just daycare that can be expensive—maybe you’ll need a second vehicle now to facilitate drop offs and pick-ups. That comes at an added cost and will need to be factored into your budget. Then there’s clothing, food, parking, gas, and more to consider, as well. And that’s really only taking one child into consideration. If you have multiple children in daycare, the costs go up accordingly. 

And then there’s the future to think about. RESPs are a great way to start saving for post-secondary education and the sooner you can start contributing, the better.

“I always advise new parents to start contributing to an RESP as soon as they can. Even if it’s just $50 a month,” says Rice. “The sooner you start contributing, the sooner you are eligible for things like government matching, interest accrual, and more.”

That’s the best case scenario, but if you’re not able to contribute until a few years in, that’s ok too. There’s still plenty of time to contribute.

Welcoming a tiny human into the world can be one of the most rewarding experiences in life, but it can also be one of the most financially stressful ones too. But with a little bit of pre-planning and an honest look at your finances, it doesn’t have to be that life changing. At the end of the day it’s about figuring out what works for you and your unique situation. Everybody will be different and what makes sense for one household might be totally wrong for another.

If you need a little help, contact your local credit union to get started!