Martin Millican and Laurie Hall already had a four-year-old daughter and a two-year-old son when they unexpectedly found themselves expecting. Once the Toronto couple got used to the idea, they were thrilled by the prospect of another baby. What they hadn’t realized was the impact a third child would have on their cash flow.
Their child care fees rose by about $800 a month when they opted for a nanny instead of daycare. A used van set them back another $18,000, even after the sale of their too-small Honda Civic. Finally, two bedrooms were no longer enough, so the couple took over their whole house, giving notice to the tenants who’d been helping pay their bills to the tune of $1,100 a month. “We had never really thought about the financial implications of having kids,” says Millican. “But in this case, it really was huge.”
It usually is. According to a 2004 report from the Manitoba government, it costs about $167,000 to raise a child from birth to age 18, and that does not include the approximately $44,000 for a four-year university degree (projected to rise to $74,000 by 2019). What does that mean in real terms? According to David Bach, author of The Automatic Millionaire, most couples find their expenses rise 10 to 20 percent after the birth of a child, and if one parent opts to stay home, their income drops.
Ultimately, of course, nobody decides for or against having another baby based purely on dollars and cents. But monetary issues do play a role. As Carrie Sullivan, a Barrie, Ont., mother of two, puts it: “It’s not that I want to spoil my kids with possessions. But I want to be able to give them some of the things that make life enjoyable for them, like going to sleepover camp.”
Read on for tips on mat leave, child care and more>
MAT LEAVE SQUEEZE
The good news: Canada has a relatively generous maternity leave policy. Women can collect maternity benefits for 15 weeks, at which point parental benefits (which can be taken by either or both parents) kick in for another 35 weeks, for a total of 50 weeks’ paid leave.
The bad news: The basic benefit rate is 55 percent of your average salary, up to a maximum of $413 per week. Some employers will top up the rate, but if not, the drop in household income can put a painful squeeze on your budget.
Practise prudence. Try living on 80 percent of your salary in the year before your baby is born. Not only will it be good practice, it will allow you to bank the remaining 20 percent in an emergency fund to cover surprise expenses. When you consider that your taxes and work-related expenses, such as commuting and clothing, should be lower while you’re on leave, you should be in good shape.
Cut costs in advance. Can you reduce your mortgage by amortizing your house over a longer period of time? Is it possible that you can do without a car of your own? Can you replace those expensive dinners out with less pricey takeout meals or, better still, prepared frozen entrées?
Clear up credit card debt. You’ll be in better shape to face mat leave without a care. And with interest rates on credit cards as high as 28 percent, you can’t afford not to. Need a plan? Try this:
• Ensure you use your plastic only in an emergency by freezing it in a tin full of water. While you’re waiting for it to thaw, you’ll have plenty of time to reconsider that purchase carefully.
• Once you’ve stopped adding to the bill, look at the total amount you owe on credit and break it down into a daily sum over a year. It’s almost impossible to think of how you might put aside an extra $5,000 a year. But most people can manage $13 a day. It may be as simple as packing a lunch instead of heading for the nearest restaurant at noon, dispensing with takeout coffee and borrowing videos and books from the library.
Find a cheaper way to finance debt. Can’t pay off credit card debt outright? Roll it over into a bank/credit union loan, home equity loan or lower-interest credit card, potentially saving yourself hundreds of dollars a year. The caveat: Curtail your bad spending practices and stick to your budget, or you will end up building up your credit card debt again, bringing worse trouble.
Get help from the government. More families now qualify for federal refundable tax credits like the GST/HST credit, the Canada Child Tax Benefit and the spousal amount deduction. Check out Benefits Canada at canadabenefits.gc.ca for details, or call 1-800-622-6232.
CHILD CARE CRUNCH
If you pay someone else to look after your kids while you work, you can write off at least part of that cost for children under age 16. Basically, you can claim whichever is the least of the following:
• eligible child care expenses
• or two-thirds of your earned income
• or $7,000 a year for kids under seven and $4,000 a year for seven- to 16-year-olds
The problem, says Millican: “You still have to come up with that money every month.”
Compare costs. Would it be cheaper to opt for a nanny or for daycare? A space in a licensed daycare costs on average $550 to $800 per month per child, while you’d pay from $1,600 to $2,100 per month for a live-in nanny (including CPP and EI payments) and $2,000 to $3,000 for a live-out nanny. With two or more children, then, a nanny sometimes becomes more financially feasible, and you may get some much-needed help with light cleaning or cooking.
Can you stay at home instead? Provincial and federal tax credits are based on household income, so they may partially offset the lost salary. Add to that the money you’ll save on child care, commuting, additional income tax, work wardrobe, prepared foods and the occasional takeout meal, and you may be well on the way to covering your income.
Cut back your hours. Part-time work allows you to keep your finger in the pie, but still spend more time with your growing family. In that case, look into trading off child care with another part-timer.
Do you have enough room in your home? What about baby gear? Education expenses? Read on for more tips>SPACE SCARCITY
Another child can make things squishy. You can fit two car seats in a mid-size car, but an additional car seat may well stretch your vehicle space beyond its limits, forcing you to fork out for new wheels. Plus, your cozy three-bedroom home may not accommodate a third or fourth child.
Buy a used vehicle and keep it longer. “Buy a four-year-old car and plan on keeping it for at least six years,” says Lenore Davis, a senior partner with Victoria-based financial planning services company Dixon Davis & Co. “Forget about colour, bells and whistles and style. Emphasize safety, good tires and mechanical soundness.”
Opt for a demo. If you must buy new, demonstrator vehicles offer good value, as Toronto mother of two Debby Blyth found out when shopping for a van. “In many cases, the demos had only 20,000 to 26,000 kilometres on the meter,” she says. “And yet they were about $5,000 to $7,000 less.”
Rethink your house. Do you have a den that could be used as a bedroom? Perhaps you haven’t used a living or dining room for eons — why not get daily use by converting it into a bedroom? Or redo a basement as a teen-friendly habitat.
Keep your baby close. Infants can easily share space with parents — in fact it’s much easier to nurse a child if you just have to reach into the nearby bassinet.
If there’s not a huge age gap between your children, you will likely have most of the baby equipment and clothing you need for the next instalment of your family. But, you might have to upgrade to a double stroller, or toss out some of those girlie-girl dresses for some baby-boy sleepers.
Take advantage of previously loved clothes. Children outgrow their clothes long before they wear them out. Make it known that you’re open to donations from friends, or check out garage sales, Goodwill, Salvation Army or Value Village. At local consignment stores, you’ll find designer kids’ wear for a fraction of the cost, and the website kidswap.ca offers used clothing for swap or for sale.
Buying used equipment? Make sure it complies with current safety standards. A good source of info is the children’s products section of Health Canada’s website.
Adding another member to the family means forking out for everything from extracurricular activities to education savings. “Babies are cheap,” points out Carrie Sullivan. “It’s when they get bigger that they really cost you.”
Limit the lessons. “Parents today tend to over-program their children,” says Kathy Lynn, a Vancouver parent educator and Today’s Parent columnist. “There’s this myth that if kids don’t try everything by the time they’re 10, they’ll be missing out.” In fact, she says, pushing kids into activities may end up turning them off for good.
Think locally. Opt for low-priced programs at your local community centre, particularly when kids are just picking up basic skills.
Get gifted. Presenting a dance leotard or a hockey stick at birthdays, along with a voucher for lessons, points out to kids that extracurricular activities are a gift, not a given.
Cash in for education. Channel cash gifts into a Registered Education Savings Plan (RESP). Port Credit, Ont., mom Andrea Marnell intends to set up a plan for her son’s first birthday. “We’re not really asking for donations in lieu of presents,” she says, “but a lot of people tend to give money.” On top of that, the government offers its own gift — a grant of up to $400 on each $2,000 donation per child.
Set up a family RESP plan. “If there are two or more children, I always recommend a family plan,” says Vancouver financial advisor Adrian Mastracci. That way if one opts out of post-secondary education, you can direct all the income and capital in the account towards the other.
Redirect daycare fees to an education plan. It’s hard to save when you’re paying for daycare. Once your kids are in school full-time, however, redirect at least a portion of that daycare cash towards an education plan.
Finally, advises Diane McCurdy, a Vancouver certified financial planner and author of the book How Much Is Enough?, don’t agonize if you find yourself falling behind on your own RSP contributions and the kids’ education plans during their early years. “If there’s one thing I’d tell young parents, it’s don’t beat yourself up,” she says. “There are so many demands on you at this stage.”