When Jessie Weel-Bannon learned she was pregnant with her first baby, the townhouse she shared with her husband in Toronto suddenly seemed much smaller. “When you grow up in the suburbs, it’s hard to picture raising kids in a small space,” she says. More than a year later, as the couple begins to adjust to family life with five-month-old Reese, they still haven’t decided whether to upgrade to a larger home in the current market or stay put for now.
Upsizing is not the only financial decision new parents face. Growing your family can mean reworking your budget and making tough choices. Here’s how to tackle some of the biggies.
Buy vs. rent
Many parents decide to find a larger home to accommodate a growing family, but that’s not always the best course of action. “When kids are really little, they don’t need more space,” says Jason Heath, a financial planner at Objective Financial Partners in Toronto. His advice: If you live in an area with a heated real estate market, stay in your smaller home for a bit to see how much space you actually need.
As for deciding whether to rent or buy, it’s time to banish the idea that renting is akin to throwing money away. “Some cities are renters’ markets and some are buyers’ markets,” says Heath. “Depending on where you live, renting as you save in your kids’ early years could be a good thing.” Remember though, that as a renter, you won’t be building up home equity to rely on in later years, so you’ll need to put extra effort into saving for retirement.
Baby on a budget: 12 easy ways to save Fixed vs. variable mortgage
This can be a confusing question for homeowners—and there isn’t a one-size-fits-all solution for most families. “Your income, spending habits, short-term needs and long-term goals should all be considered when choosing a mortgage,” says Kim McKenney, president of the Ontario branch of the Canadian Mortgage Brokers Association. For new homeowners, she recommends choosing a fixed-rate mortgage that provides stability with a set payment. Also, look for a lender that offers flexible prepayment privileges and has reasonable penalties in case you need to sell or refinance your home before the end of the mortgage term.
Daycare vs. nanny
In some Canadian cities, the cost of putting two kids in a licensed daycare centre can be higher than university tuition. “That can be difficult coming out of a parental-leave year, when income generally goes down and expenses often go up,” says Heath. Explore all your options: For example, if you have multiple kids, hiring a nanny might make more financial sense than putting each kid in daycare or after-school care. Or consider a home daycare provider, which is generally more cost-effective than a large centre.
Saving vs. debt repayment
Many parents feel an urgent need to start saving for higher education as soon as their kids are born. That’s great if you can swing it, but it can make sense to use any extra cash to pay down debt while your kids are small, especially if you have a high-interest credit card balance or a big mortgage with little home equity. When you’re ready to contribute to an education fund, Heath recommends a registered education savings plan (RESP). The government matches 20 percent of your contribution each year, up to $2,500 annually.
One final to-do for new parents: Appoint a legal guardian soon after your baby is born. A guardianship clause can be added to a will with the help of a lawyer. “You need to put pen to paper about who you want caring for your child in the event you can’t,” says Heath.