Budgeting for baby

How parents can prepare for this life-changing event.

Gail Bebee 2 July, 2014 | 6:00PM
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Welcoming a new baby into the family is a fundamental facet of the human experience. Beyond the celebration of this wondrous and life-altering event lie many practical consequences. Your new bundle of joy is a human being that will require nurturing for the next 20 years or more.

That nurturing comes with a hefty price tag. A 2013 Fraser Institute report pegged the annual cost to raise a child in Canada at $3,000 to $4,500. This is a basic-needs estimate only and does not cover child-care costs or discretionary spending such as music lessons, Disney World vacations or expensive clothes. Clearly, some serious thought about the financial side of expanding your family is in order before baby is on the way.

What will your new baby cost? Diapers, cribs, strollers, car seats and toys are just the beginning. To estimate your spending during baby's first year, talk to friends and family with baby experience and check out online tools such as The First-Year Baby Costs Calculator.

When there is a child to care for, financial planning takes on new meaning. Will the family have one income or two? How will the bills be paid if one parent falls ill or loses her job? What happens if a parent dies while the child is still young? How much does it cost to educate a child?

Expenses if both parents return to work post-baby can be substantial. Besides child-care costs, there will be income tax to pay plus work-related expenses such as transportation, work clothes, coffee and lunches out. Evaluating the benefits of two incomes versus the costs is a worthwhile exercise. In addition to providing what some believe is the best child-rearing environment, staying home with baby may make the most financial sense.

Planning for parenthood is the time to top up your emergency fund and work out future insurance needs and costs. Online tools such as this disability-insurance calculator and this one for life insurance are handy ways to estimate your needs.

Disability, life and extended health-insurance coverage may be available as part of your employee-benefits package. This is usually the lowest cost option, but may not be sufficient. Of note, this coverage lapses if you leave your job. Private insurance purchased through a provincially licensed life and health insurance agent is the alternative.

Soon after your baby arrives, someone will probably try to sell you a registered education savings plan. While RESPs are a great way to save for a child's education, plan features and benefits vary significantly. To avoid being locked into the wrong plan, brush up on RESPs before new parenting duties swallow up your spare time.

Take-home pay needs to stretch further with a baby in the family. Government benefits and tax breaks may be available to help with child-rearing costs.

If a new mother residing outside Quebec has at least 600 hours of insurable employment, she may be eligible for up to 15 weeks of Employment Insurance (EI) maternity benefits to care for her newborn or newly adopted child. If both parents meet EI criteria, the family could also qualify for up to 35 weeks of parental benefits, which can be shared.

The benefit amount varies by province of residence and is about 55% of earnings to a maximum of $514 per week. Your family budget will need to account for the two-week waiting period before the payments begin.

These programs come with the usual profusion of rules and require application online to receive benefits. Processing takes several weeks, so applying well in advance of the expected birth date is advisable.

In Quebec, there is a different maternal/parental leave program, the Quebec Parental Insurance Plan (QPIP). The threshold to qualify is at least $2,000 of insurable earnings. Two different plans are available. The basic plan provides lower benefits for a longer period; the special plan pays higher benefits for a shorter period. Depending on the plan, a parent could receive up to 75% of his or her average weekly income.

Some employers will pay a top-up benefit over and above the aforementioned maternity/parental leave benefits. When considering a family addition, find out if your workplace offers such a program and, if so, the rules to qualify and the top-up you would get.

Low- and middle-income families may be eligible for full or partial federal and provincial/territorial government child and family benefits including a tax-free monthly Canada Child Tax Benefit for children under 18, a Universal Child Care Benefit for each child under six and a goods and services tax/harmonized sales tax credit. The amount paid depends on the number of children and family income. Use this CRA calculator to estimate the payout for your family.

As soon as a new baby is born, the primary caregiver can apply for these government benefits. In most provinces, the mother can apply automatically at the same time as she registers the birth. Otherwise, application can be made online or by remitting a completed Canada child benefits application.

After baby arrives, you can budget for a lower income-tax bill. One parent can claim the basic federal tax credit for a child under 18 ($2,255 for 2014). A child-care expenses deduction of up to $10,000 per year is available to the parent with the lower income.

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About Author

Gail Bebee

Gail Bebee  Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

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