Your new addition will bring you both great happiness as well as many new expenses. Establishing a solid financial plan for this life-changing event will help reduce the potential financial impact so you can focus on the joys of parenthood.
Take a close look at your household cash flow
Ensure you have a good handle on your household cash flow — your income compared to how much you’re spending. When you have children, your expenses will likely increase — food, clothing, doctor’s visits. Some initial questions to ask: Will you have an income shortfall based on current or future spending? Where can you make adjustments? These answers will be different for couples, single parents, and even parents with strong extended family support.
Plan for the unexpected
Creating an emergency fund will ensure you can cover the things you don’t budget for like unexpected healthcare costs or temporary unemployment. If you don’t already have an emergency fund, now is the time to create one. If you have one, you may want to increase it to accommodate the additional costs of supporting your children. Consider setting aside six months’ salary for single-income families or three months’ salary if both parents earn an income.
Know the cost of childcare
You’re likely going to need help taking care of the little one. Be sure to research your childcare options ahead of time. Some parents have a reliable family network with grandparents, aunts and uncles, as well as close friends and godparents who are happy to share the responsibilities. But even if you have a family who can help you’ll likely still need babysitters, daycare or an in-home caregiver.
Become familiar with what’s available in your area and what will fit within your budget. Also, be realistic about how much time off you can feasibly take to be with the new baby and what are the maternity/paternity leave parameters at your place of work. If you require full-time child care, evaluate whether or not it makes sense for one parent to stay home, especially if the cost of monthly childcare exceeds or is the same as one person’s monthly salary.
Make a list and budget for first-time and ongoing expenses
It’s more than just painting the nursery. Think baby monitors, cribs, car seats, infant bathtubs, and baby-proofing the house. The adorable clothes and blankets you got as gifts when the baby was born will soon be outgrown and you’ll need new ones (even if there are older siblings or cousins who can pass on gently used items). Food, toys and medicine will never be far from your mind — include them in your budget.
Begin saving for education
Most people start thinking about the cost of university as soon as they get the news they’re having a baby. However, that’s not the only educational cost on the list. Pre-school, primary and secondary schools all have associated costs even if your child is not enrolling in a private institution. While government schools don’t come with tuition fees, there are books, uniforms and other essentials that must be purchased.
While it seems in the distant future, university savings plans should start as early as possible. This is a big-ticket item for all parents especially if you have more than one child, or there’s a possibility of studying at a university outside your country.
Plan for the unexpected
For many experts, this is at the top of the list: make a Will and choose a guardian.
If you have a health insurance plan, adding your dependents will likely increase your monthly cost. As much as you don’t want to think about not being around, a comprehensive Will and estate plan are two of the most important things you can do as a parent. A Will can help you map out the care of your child from pre-school to university and into early adulthood. Finding the most suitable guardian, the person you trust to care for and nurture your child if you’re not there is every bit as important as the financial resources you’re leaving.
It’s also important to think about yourself as well as the baby. While building a financial plan to support your children, take time to consider your retirement. Ensuring you are financially secure after you retire will be one less thing your adult child will have to worry about.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
