The Financial Challenges of Becoming a Parent

Parenthood happens differently for everyone. You can plan it carefully or it can be a surprise. You can share the experience with a partner or you can go it alone. But it will always change your life forever.

Not surprisingly, one of the biggest and most immediate impacts of becoming a parent will be on your finances. You are now responsible for a whole other person who depends on you for everything. At the same time your household income is likely decreasing, your expenses will steadily rise to deliver the 24/7 care your child needs.

Here’s the good news: You can start planning for these financial changes from the time you find out you’re expecting — and reduce the chances of ending up with debt you can’t manage.

As with most things, this is easier if you break it up into smaller chunks. In this case, over the short, medium and long-term.

Immediate Term: Income

It is helpful to know what you can expect to earn once baby arrives. Some considerations are:

Are you entitled to maternity and parental benefits?
Canadians are fortunate to have both maternity and parental leave benefits. It is fairly straightforward to estimate the benefit amount using this calculator on the Government of Canada website.

If you are self-employed, you may not be entitled to maternity or parental benefits. You will need to consider how much time you can afford to take off work — and perhaps who takes advantage of the parental leave to maximize the household income.

Does your employer offer any top-up? 
Many employers offer a temporary maternity / parental leave top-up — often to the employee’s full-time income — to help ease the transition. Discuss these opportunities with your supervisor or human resources advisor.

How much will you receive from the Child Tax Benefit?
Provided your taxes are up to date, you will start receiving the CCB shortly after you complete your child’s birth registration. Your eligible payment is based on your prior years’ income tax information and you can use this online calculator to determine how much you can expect to receive.

Short Term: Expenses

Some additional costs you’ll want to start preparing yourself for include:

Housing costs.
Will you need a larger home or different living arrangements to accommodate another person in your household? The first child usually fits quite easily into an existing home, but once you start adding more, your one-bedroom apartment might not cut it. 

Transportation costs.
Will you need a bigger vehicle to accommodate those massive car seats? How about a stroller for walking and public transit?

Clothing and household costs.
Babies grow out of their clothes rapidly and seem to go through five or more outfits a day. There are also diapers, wipes and formula to think about. Not to mention, other household expenses like hydro and water bills will go up as you spend more time at home and do more laundry. Take advantage of hand-me-downs, buy used clothing and toys and cook at home as much as possible to reduce the impact.

Medium and Long Term: Toddlers, Children and Adolescents

The more distant financial impacts will largely depend on what happens after the first 12 or 18 months. Will you go back to work or be a stay at home parent? Will you enroll your child in sports? Will you require any medical or support services?

Some budgetary categories to consider include:

1. Childcare
2. Extracurricular activities
3. Education savings
4. Insurance
5. Estate Planning
6. Establishing an emergency fund

Budget, Budget, Budget

Get everything we discussed above down on paper — and discuss these considerations with the other members of your household. This will ensure everyone is on the same page, help you stick to your budget and ensure you can make any necessary changes along the way.

If you’re carrying existing debt and find your new budget will not allow you to pay it back, you may need to consider ways to deal with it before the baby comes.

During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your financial situation and help you to figure out the best option for dealing with your debt, such as a Consumer Proposal or Bankruptcy. These, and a range of other potential solutions, can help you wipe the slate clean and get the financial fresh start you deserve.

More importantly, your Life-Changing Debt Solution will allow you to focus all your time and attention on your growing family.