There’s nothing quite like the news of a first child on its way, to make couples start “adulting” when it comes to their money.
When you’re just planning and paying for one or two, it seems so much easier to live from paycheck to paycheck, or bounce back from credit card debt or a job loss (after all, you can likely always move back in with your parents for a while if you need to).
But the arrival of a new baby? Suddenly you’ve got a very real, important and concrete reason to make sure your finances are solid and your family is completely protected. So if you’re part of the swell of expectant parents painting baby rooms and writing birth plans all over Victoria right now, spend some time thinking about the five ways your financial picture is about to change, while you’re still sleeping more than six hours a night (and have the free time to meet with an advisor).
1Crunch a new set of numbers.
If you’re both working now and you’re basically spending what you earn each month (read: you spend a lot of time eating and drinking out), shaving your spending down to accommodate for a temporary maternity or paternity leave will be a lifestyle shift for you – let alone planning for daycare costs, RESPs and a general increase in household costs. Also, any fertility or health issues will likely mean you’ll have to tighten up your spending much earlier. My wife, for example, went to part-time work a year before her maternity leave to increase the likelihood that fertility treatments would be effective (and they were!). It’s all absolutely doable – you just need to have a clear view of your financial picture now and when baby arrives (debt load and earning potential). Then spend your first trimester trimming down debt, building savings and adjusting your lifestyle to accommodate for the temporary reduction in income and then added costs of a new family member.
2File and pay your taxes.
The upside to child-related expenses is that many are actually tax deductible. If both parents work outside the home, the lower-income spouse can deduct a portion of childcare costs from his or her taxes – up to $7000 for per child, for children under age seven; and $4000 per child older than seven, but under 17. Most summer camps also count for this deductible. Of course, you have to be up-to-date on your taxes to start claiming this benefit – so make sure you’ve got this paperwork sorted well before your due date.
3Update your will and power of attorney.
It’s wise to update these documents whenever there’s a life event – especially true with the arrival of a new child (your first or your fifth). You’ll want to name a legal guardian for your child in your will and decide when and how your children will inherit your estate. Your financial advisor can help you navigate your options, so that the updating process with your lawyer is quick and simple.
4Seriously consider life insurance.
Nobody likes to think about worst case scenarios when they’re expecting a child, but it really is important that you ask yourself how much money your family would need, each month, to cover current expenses, if anything tragic were to happen to you tomorrow. And asking, “For how long?” is equally as important. A financial advisor can help you map out an accurate picture of how much your family will need, based on each adult’s current salary, employee benefits and unique working situation (part-time or full-time, for example). Pro tip: you’ll save money if you and your partner purchase insurance together and many insurance providers discount premiums that are paid annually instead of monthly.
5Think about disability insurance too.
You’re statistically far more likely to become injured with a long-term disability, than to die before retirement – up to seven times more likely in a 30-year period (35 to 65 years old), according to a recent study in Today’s Parent magazine. I definitely see a higher member need for this type of protection at Island Savings. Although some employers provide up to two thirds of pre-tax income in their basic packages, you don’t want to be left worrying about finances while you’re trying to recover and raise a family. Additional coverage can go a long way to supplementing your lost income.
Re-imagining your finances should be a key part of your planning before baby arrives. The good news? Once you have a new plan in place, you’ll be able to rest easy in between 2AM feedings, knowing you took care of the most important part of baby prep early.