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Starting a family brings joy, and financial
challenges
There's no getting around
it: Raising a child is an expensive proposition. But knowing what to
expect beforehand can help ease the financial burden and allow you to
focus your attention on what's really important.
Click through the links below for some smart
planning tips.
• Children
are dear in more ways than one
• Create
a new family budget
• Take
a fresh look at your goals
• Get
a head start on education savings
Children are dear in more
ways than one
There are the diapers, the
baby formula, and the crib. There are the clothes, which your child will
soon outgrow. As your kids get older, there are birthday parties, school
supplies, music lessons, and hockey equipment. Well, you get the
picture.
From the time you find out you're
expecting until Junior leaves home, your household -- and your household
expenses -- will never be the same. For instance, your monthly food costs
will probably rise by about $120 to accommodate an infant's nutritional
needs. A growing teenage boy can bump up your monthly food bill by $160.
And that's just for food. You also need a roof
over your head. Many couples want to move into a larger home when they
have a child. This means a bigger mortgage, as well as the costs of
furnishing and perhaps renovating or redecorating. Working parents will
need to find child care, while stay-at-home parents will need to adapt to
a reduced income.
For a comprehensive listing
of the potential costs involved in raising a child, as well as some sample
budgets, check out "The Cost of Raising a Child: 2001" produced by the
Home Economics Section, Manitoba Agriculture and Food. You'll find the
link at Family
finance
Did you know...The cost of
raising a child to 18 is about $155,000.
Create a new family budget
New parents and
parents-to-be have some important decisions to make that will affect their
lifestyle as well as their finances. If you can, boost your savings before
your child is born. A high-interest savings account is a good way to put
money aside and build a contingency fund.
Then,
sit down with your spouse and work out a realistic budget to take effect
after the blessed event. If you've never created a budget before, you'll
find useful tips and pointers in our budgeting article click
here to view
Remember that there are always
alternatives. It might be nice to buy that state-of-the-art stroller, but
your sister's slightly used pram would be just as suitable. Establish
priorities, so you can spend your money on what really matters to you.
Now, for some good financial news: The federal
and provincial governments provide some assistance to families raising
children, in the form of the Canada Child Tax Benefit (which is taxable)
and tax deductions for qualifying child-care expenses. The Canada Customs
and Revenue Agency lists these benefits at www.ccra-adrc.gc.ca/benefits/menu-e.html
Take a fresh look at your goals
Financial planners often tell us that significant life
events are a good time to review financial goals. Having a child is most
definitely one of those events.
There's no
doubt that your shorter-term goals -- such as vacations, entertainment, a
good night's sleep -- are going to be put on hold for a while. But what
about your longer-term goals?
Retirement
savings. You may be tempted to delay building up your Registered
Retirement Savings Plan (RRSP) while you face the costs of raising a
family. You'll certainly have some tough financial choices to make, but
it's not a good idea to forget about retirement savings altogether.
Raising a child is a long process. The trick is
to find ways within your revised budget to keep up the contributions to
your RRSP. Even if you need to make smaller monthly contributions for the
time being, you're still taking positive steps toward funding your
retirement dreams.
Insurance. When you
were single, life insurance probably seemed like something reserved for
the future. Well, that future is now. Your long-term goals have expanded
from a comfortable retirement for you and your spouse to include a
financially sound future for your child.
Whether your family is getting by on one salary or two, the death of one
spouse could be disastrous for your kids. It's a good idea for both
spouses to carry enough life insurance to raise your kids (at present
income levels) until they reach the age of maturity.
Get a head start on education savings
When do you need to start saving for your kids' college
fund? The answer is as soon as possible. The rising cost of post-secondary
education and declining government subsidies mean that the earlier you
start, the better.
For most Canadians, a
Registered Education Savings Plan (RESP) is the most popular way to save
for a child's education. Like an RRSP, the plan's assets grow on a
tax-deferred basis. Unlike an RRSP, however, the contributions are not
tax-deductible.
You can invest up to $4,000 per
year, to a maximum of $42,000, over the course of the plan. Then there is
the Canada Education Savings Grant (CESG). Under the CESG, the federal
government will match 20% of your annual RESP contribution, to a maximum
grant of $400 per year. So if you contributed $1,000, the government would
kick in $200. The maximum CESG over the life of the plan is $7,200.
RESPs are readily available at most financial
institutions. For more information about RESPs and the CESG, check out the
following government Web sites:
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