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Understand your cash flow
Talking about money with your partner can be difficult. According to a 2021 Fidelity study, 44 per cent of couples argue about money. But when you’re bringing a new life into the world, you might find yourself arguing about financial matters more than ever.
“The first stress that people come across is mat leave or paternal leave,” Steacy notes. “A period of lower income is certainly the bigger stressor, or the bigger concern right off the bat.”
If one parent is going to work while the other takes time off temporarily, will that partner be receiving a top-up from their work, or will they only get employment insurance (EI)? What will your finances look like when these payments stop?
“If there are going to be deficits in that time,” comments Steacy, ”the first thing I would then work with someone to do is say ‘how can we create a buildup of funds somewhere?’”
If possible, Steacy recommends you pay off your debts as soon as you can so you’re not paying unnecessary interest.
Ryan knows the importance of this advice. “What made the moment ‘right’ to have a child was having my personal debt behind me and to be in a good ‘financial flow’ and actually having savings,” she notes.
Before your child is even born, Steacy suggests that you deposit any leftover money you have at the end of the month in an account where you can build up cash. This fund will act as a supplement for when your income is reduced when the baby arrives.
She also recommends that if you don’t have the funds to set aside, you should review your personal budget to find out where improvements can be made.
Cut big expenses
“There are going to be times when people may need to look at cutting some big expenses,” she says. Things like car payments and housing costs can raise your monthly debts, making it difficult to navigate inflation.
For example, housing is a big concern for people these days, but Steacy points out that babies and children don’t actually require that much space. A one-bedroom condo or apartment might be appropriate for the first few years, which can allow you to save money until you require a larger home.
With the added costs of raising a child, Steacy points out that paying rent could be a better solution than putting your savings toward buying a home. Instead, you can put that money toward things like a term life insurance policy.
Steacy observes that without a term life policy in place “if you were to pass away and leave a child, the financial burden of that would be debilitating.”
Review your financial plan
There are numerous stages of your child’s life, all that will impact you financially in different ways. At each stage, Steacy recommends reviewing your financial plan to ensure maximum efficiency.
When your child is first born, you’ll face reduced income due to being on parental leave. Then when your child starts daycare, you need to account for this expense, and consider how it affects your finances. Finally, when your child starts school, you will no longer be paying for full-time daycare, but you may need to consider before- and after-school care.
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Understand your trajectory
Ryan intends to be the primary caregiver for the first year of her child’s life.
“I am grateful to be expecting the maximum EI benefit rate during those 12 months, which will be helpful financially”
But at the same time, she acknowledges that there might be tougher times in the future. After her maternity leave is up, Ryan and her partner hope to place their child in daycare. As of 2022, the average cost of full-day child care for an infant can range from $181 a month in Quebec to over $998 in Ontario. While a national daycare program is promised, it’s still a wait until it becomes a reality.
Taking time to examine what your finances will be at these different stages can help you budget for both the short- and long-term.
“You could ask family or friends what works/worked for them, especially as it relates to managing the day-to-day household finances,” Steacy observes.
Steacy recommends working with a money coach or an advice-only financial planner, ideally one who works with others who are at the same age — and stage of life — as you.
“There should be a relationship and some sort of ongoing relationship [with your financial advisor],” notes Steacy.
When your advisor is aware of history and future prospects, it lets them provide ongoing advice, she observes, which in turn allows for “flexibility for change.”
