4 Financial Must-Dos When Preparing For Baby

It feels like there’s a never-ending to-do list when you’re expecting a baby - decorating the nursery, assembling and buying baby gear, packing your hospital bag, and, if you’re me at this time last year, trying to explain to your toddler that they’re about to get a baby sister.

Updating your finances might take a backseat to some of the more practical items, but taking the time to do a few critical financial to-dos after the baby arrives can set you - and your child - up for success in the future. And the good news is you can do most of these things online during nap time. Here are the main things you should check off your financial to-do list before and after you have a baby:

Before baby arrives

Update your budget 

Kids are expensive - according to StatsCan, we’ll spend almost $300,000 on each child from birth until age 17. It’s essential to look at how your monthly budget will change when you welcome a child and how those costs will change in the first couple of years. It’s helpful to divide them into one-time costs (baby gear, nursery items, outdoor gear like bicycles) and ongoing costs (diapers, food, formula, daycare or childcare fees, extracurriculars). I saved a lot of money by buying gear and clothes secondhand through local mom groups, secondhand stores, and websites like Rebelstork, and by asking parents in my peer group to borrow items they weren’t using - but it still adds up.

If you plan to open an RESP or another savings account for your child’s education, it’s also important to budget for that. As your expenses increase, it’s essential to understand how your income will change if you take parental leave - for example, does your employer top-up government benefits - and how programs like the monthly Canada Child Benefit can offset some of these costs.

After baby arrives

Get (or update) life insurance

My husband and I already had life insurance when we had our first child since we owned a home and wanted to be able to pay off the mortgage if either of us passed away. However, many prioritize life insurance when they have children, knowing their kids will be financially taken care of if anything happens. The most common type of life insurance is term life insurance, which requires that you pay a monthly premium over the lifetime of the policy (typically 25 years), and if you pass away at any point while the policy is active, it pays a lump sum to your beneficiaries. The monthly premium cost varies depending on the size of the policy and factors like your age and health situation - you can use calculators like this one to determine how much life insurance you may need and the associated costs.

Many people have life insurance through their workplace benefits program, so the first step is to confirm whether you have any coverage and the amount. Many people buy additional life insurance to supplement their workplace benefits, and you can do this through a life insurance broker, via a bank or insurance company, or through an online tool like PolicyMe.

If you already have life insurance, good for you. You’ve already taken an important step to protect your children. You may want to consider increasing the amount of your coverage to reflect your growing family.

Get (or update) a will and power of attorney documents

While a will is essential for any adult, it’s even more important as a parent. The number one reason people create a will via my company, Willful, is the birth of a child. A will is a legal document that outlines three critical decisions when you pass away - who will act as executor to wrap up your estate, take care of any minor children and pets, and receive your assets. Not only can you appoint guardians for your children in your will, but you can also appoint your children as a beneficiary. It’s common to leave everything to your spouse if you have one and then to have everything go to your children if you and your spouse pass away at the same time. Notably, a will also allows you to dictate at what age your children should receive their inheritance since the default is the age of majority (typically 18). For example, in my will, I’ve stipulated that I’d like them to get half of their inheritance at 21 and the rest at 25 since I think they’ll be more responsible with the money at those ages.

If you pass away without a will, a government formula will dictate who will receive your assets, and it often means your assets will be tied up in the courts until your children become adults, which is not ideal. Making a will - or updating your will to reflect your growing family - gives you the peace of mind that your children will be taken care of if something happens and that you’ll reduce the burden on your family when the time comes.

You can read more about how to get a will in Canada and how much it costs (hint: less than $100) in this guide. You can also create power of attorney documents at the same time, which appoint someone to make decisions on your behalf if you’re incapacitated - not fun to think about, but important when you’re a parent.

Open an RESP (free government money!)

Post-secondary education is expensive, and the Canadian government gives parents a leg up through the Registered Education Savings Plan (RESP). This is a savings vehicle akin to an RRSP - parents can contribute up to $50,000 per child, and the government will match up to $7,200, and any interest can be earned tax-free within the account. I opened an RESP shortly after my daughter was born, and I’ve already saved thousands through regular monthly deposits, depositing any cash gifts she receives around holidays and, of course, the government matching. When we had our second daughter, I changed the account to a Family RESP, which allows them to share the savings in future.

You have to wait until your child is born and you receive their Social Insurance Number in order to open an RESP, and you can do this through any bank, a company like Embark, or fintechs like Wealthsimple.

Now that you’ve taken care of the big tasks, here are some smaller to-dos that will set you up for success:

• Register for a SIN - you will need this in order to open an RESP
• Register for the Canada Child Benefit in order to receive a non-taxable monthly payment from the government (the amount will depend on your household income, where you live, and other factors) - this is typically done automatically when you register the birth with your province
• Review and update any beneficiaries on registered accounts like RRSPs TFSAs and life insurance policies
• Add your child as a dependent on your workplace benefit plan

In finance, there is almost nothing more powerful than planning ahead. In fact, I tried to open an RESP when I was 23 - over a decade before I had my first child - and I was told you have to have children in order to open one (and here I was, just trying to harness the power of compound interest well in advance). Whether opening your RESP and letting compound interest do its thing or getting key legal documents like a will in place, completing these tasks will ensure that you have the confidence and the plan to help your children thrive in the future. The cost of not doing these things is too high to ignore.

This article provides information, not legal advice.