These steps can help organize your thoughts to devise a financial plan, regardless of where you are in your family building journey
Savings form the bedrock of any family’s plan for financial security. Photo by Getty Images/iStockphoto Deciding to start a family is an exciting and life-changing milestone, but it’s also an expensive decision.
Advertisement 2 This advertisement has not loaded yet, but your article continues below.
Raising a child from birth to 18 years old will cost today’s parents roughly $283,000. Coupled with the increasing cost of living and home prices still near record highs, it’s easy to see why it’s important to begin planning for your family’s long-term financial health and security as soon as possible.
Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300
Five core themes — savings, security, solidify, strategize and subtract — can help organize your thoughts to devise a financial plan, regardless of where you are in your family building journey.
Savings Savings form the bedrock of any family’s plan for financial security. It’s advisable to have an emergency savings account with three to six months’ worth of living expenses, including housing, health-care, food and personal expenses. The reason for an emergency fund is simple: to safeguard your family’s financial security, especially in times of economic uncertainty.
This advertisement has not loaded yet, but your article continues below.
Article content New parents should also consider longer-term saving plans, including split contributions to a tax-free savings account (TFSA) and registered retirement savings plan (RRSP). Money contributed to both vehicles will grow tax free and are excellent tools for long-term financial planning.
Unlike the TFSA, the RRSP is not a flexible account from which to withdraw funds since withdrawals are taxable (except for first-time homebuyer plans and certain learning initiatives that have different withdrawal rules). But this should not detract young parents from leveraging the benefits of the long-term financial security an RRSP provides.
The markets killed your early retirement dream, but there is a way to Freedom 65 Reunited might not feel so good if you signed a prior separation agreement Sure, you have insurance, but, like most, it’s probably not enough Advertisement 4 This advertisement has not loaded yet, but your article continues below.
It may seem far in the future, but now is the best time to save for your child’s education. The average cost of a four-year post-secondary degree is $96,000, according to Statistics Canada. New parents should consider allocating the maximum $208 a month (or $2,500 a year) into a registered education savings plan (RESP) per child.
Your money grows tax free in an RESP, and any grants and income will not be taxed until money is taken out for your child’s post-secondary education. If you are finding it difficult to make contributions, consider asking family and friends to make contributions on special occasions.
With three to six months of emergency savings, and additional funds being allocated to your TFSA, RRSP and RESP, you now have the financial foundation to build strong savings’ habits and security for you and your family.
Advertisement 5 This advertisement has not loaded yet, but your article continues below.
Security From chronic health conditions to an unexpected death, protecting your family through life insurance is an important, but often overlooked component of financial security.
Two strong options are term life insurance and permanent life insurance. The former offers coverage for a set amount of time, while the latter covers you for your entire life.
Depending on your situation and budget for premiums, working with an insurance specialist to select the best plan for you is another layer of financial security if you pass away.
Solidify More than 60 per cent of Canadian adults do not have a will. It may be difficult and uncomfortable to think about, but investing the time to solidify your estate through end-of-life planning can protect your family from the unexpected.
This advertisement has not loaded yet, but your article continues below.
Article content A will can be used to ensure your children will receive an allocation of your physical, financial and digital assets. Taking the time to sit with your financial adviser to discuss the benefits of estate planning is a crucial step in safeguarding your children’s financial welfare.
Strategize Before starting a family, map out a budget to better understand where your money is currently allocated (that is, fixed expenses, savings and investments, debt, etc.) and where you need it to go in the medium-to-long term. Doing so will help you strategize priorities that may include investing in term-life insurance, buying a house, or planning expenses and income during parental leave.
If you find yourself in a shortfall, don’t panic. This is the perfect opportunity to think of where you and your family would like to be in five years and pull the levers that will get you there. Whether it’s allocating more to your RESP and less to your TFSA, or moving into a home to support a growing family, taking the time to plan today is where future results begin.
This advertisement has not loaded yet, but your article continues below.
Article content Subtract Adding to your income, savings and investments is critical to make enough money to comfortably support a family, but there are areas where deductions are also beneficial.
For each child under the age of seven, you can claim an annual $8,000 tax deduction for a nanny, daycare costs and other child-care needs using Canada Revenue Agency’s child-care expense deductions (line 21400 in your tax return). If you paid someone to look after your child, this tax deduction should be used to compensate for those costs.
At first, devising a long-term financial plan may seem daunting. Every family is different, but an experienced financial adviser can begin an ongoing conversation to safeguard your family’s financial health and future.
Plan as best you can, monitor your circumstances to remain nimble and create space for healthy discussions about money and finances.
Maria Miletic is an associate portfolio manager at Richardson Wealth.
_____________________________________________________________
If you liked this story, sign up for more in the FP Investor newsletter.
_____________________________________________________________