Baby costs: Can you afford another child?

Two-hundred-and-forty-four-thousand dollars. That’s how much each of your children will set you back by the time they turn 19, according to the most recent Canadian data (compiled by our sister publication MoneySense). And that’s not including post-secondary education.

Yes, raising kids is expensive. But adding to your family doesn’t have to break the bank. The good news is that you’ll save thousands of dollars on gear the second (and third) time around. Plus, you have plenty of practise living under baby-induced austerity. And, just remember, it doesn’t last forever. “Either you’re going to stress over it or you’re going to suck it up,” says JulieMae Doherty, a mom of three from Toronto. “We’re sucking it up.”

Maternity and parental leave benefits top out at $501 per week, minus income taxes. But you must have worked at least 600 hours during the previous 52 weeks, and paid into the program, to collect employment insurance benefits (EI) – though the Quebec Parental Insurance Plan differs.

Even if you’re self-employed, you can still collect benefits through a new federal program, but if you draw on these benefits once, you have to keep paying into the program every year that you’re self-employed. Depending on your total household income, you might also be eligible for hundreds of dollars in “baby bonuses” (the Canada child tax benefit and national child benefit supplement) to help boost your income.

Make a post-baby budget, post-haste. The key to not falling into debt is freeing up cash flow, says Karen Richardson, a money coach in Kenora, Ont. She encourages clients to live on their projected mat-leave budget during their pregnancy, funnelling extra cash into a high-interest savings account. She also suggests reducing monthly loan and mortgage payments to the bare minimum, and making sure you’re paying the lowest possible interest rate.

You’re also entitled to earn a bit of extra income during parental leave (which begins after your 15-week maternity leave) and still collect EI benefits, under the government’s Working While on Claim project.

As a last resort, set up a monthly transfer from a low-interest line of credit to your chequing account, rather than swiping your credit card – at 19 percent interest – every time you fall short.

“You are in the most expensive time of your life,” says Richardson. “If you can stop adding to your debt during maternity leave, you’re ahead of the game.”

Costs vary wildly depending on where you live – I pay $75 per day for infant care in Toronto; in Manitoba, the legislated maximum for infants is $28 (and $19 for preschool care). But, on average, Canadian families can expect to pay about $9,000 a year for infants and $5,100 for before- and after-school care for older children.

If you opt for a nanny, you’re looking at $14 to $18 an hour for a live-out, or minimum wage for a live-in (this varies across provinces). Either way, keep in mind that hiring a nanny can cost more than you’d expect, both in money and time, since you are responsible for withholding income taxes and paying Canada Pension Plan and EI contributions on your employee’s behalf.

First, decide whether it’s financially feasible to go back to work full-time. With daycare for two kids eating up around $14,000 a year, it might make more sense for the lower-earning parent to stay home. (But be warned: Recent research has shown that your salary declines an average of three percent for each year you’ve been away.) Alternatively, talk to your employer about working part-time, flextime or from home to save on child care.

“You can also network with other parents to share daycare,” says money coach Karen Richardson, with each parent taking all the kids one day a week.

It’s also worthwhile to investigate whether your family is eligible for a provincial or municipal child-care subsidy. Visit your provincial and municipal websites to find out how.

Once your child begins attending school full-time, the daycare expense drops substantially and then disappears altogether, allowing you to funnel the extra cash into your mortgage, retirement or education savings.

A new home, at the average Canadian price of $364,000, can cost tens of thousands in realtor, lawyer and land-transfer fees, moving costs, unexpected maintenance, and higher property taxes, on top of higher mortgage payments. Renters can also expect to pay a few hundred dollars more each month for a family dwelling, not to mention shelling out for new furniture and higher utility bills. As for wheels, a new Dodge Grand Caravan – the most popular minivan on the market – will set you back at least $21,000.

Make do. When Doherty was pregnant a third time, she was convinced she’d need to trade in their Honda Civic for a minivan. “Then I saw the price,” she says. Instead, she invested in three Diono Radian car seats (the narrowest on the market) for $300 apiece, and had a professional installer cram them into the Civic’s backseat. For carting around strollers, they bought a $1,200 Thule rooftop cargo box.

The Dohertys also have a compact house. While they save for an addition, their littlest tot slept in a bassinet in his parents’ room for eight months before moving in with his siblings. It was mayhem at first, but two years later, the kids refuse to sleep apart.

“Is your priority to be comfortable while you’re on leave, or is it to have a $700 van payment?” says Richardson, who urges her clients to put off any major purchases at least until they’re back at work.

Starting a registered education savings plan (RESP) is one of the smartest ways to save, since the federal government will give you a grant totalling 20 percent or more of your annual contribution. On the maximum of $2,500 per child per year, that’s $500 to $600 a year, depending on your income. Plus, you can put your RESP savings into stocks, bonds or GICs to generate an even higher return. You’ll need every nickel, since annual university costs (including tuition, living expenses and so on) are projected to be north of $20,000 per year by the time your kids hit 18.

Since the Dohertys will have three kids in university at the same time, they’re putting $600 a month into an RESP. At minimum, Karen Richardson tells her clients to channel their $100 monthly universal child care benefit into an education plan.

A word of caution from Toronto personal finance expert Preet Banerjee: Private RESP providers can charge such onerous fees and penalties that you could end up with a negative return. “Very few people have had good experiences,” he says. Stick to a bank or other major financial institution.

When your kids withdraw funds from an RESP, they pay the tax – and, since they’ll have little or no income, the rate will be close to nil. And if they decide not to attend post-secondary school, says Banerjee, you can roll your RESP savings into a personal RRSP (minus the government’s contribution). In other words, you can’t lose.