You’re Having a Baby – Now What?

Congratulations!

Finding out that you’re about to have a baby is a wonderfully exciting moment. It also kicks off a period of intense planning, usually concentrated around one important question: are you ready for that baby? The single most important thing you’ll need to survive your first year of parenthood is a sense of humour. I can’t help you with that. But having reached that milestone a while ago, I can offer some insights into how you can make your baby’s arrival and the subsequent maternity leave less stressful from a financial perspective.

Baby Finance Planning

Make a Plan

If you were employed prior to having a baby, you will likely be eligible for Employment Insurance benefits. You will also likely be surprised by how small those benefits are. Essentially, you get 55% of your average insurable weekly earnings, up to a maximum amount, which as of January 1, 2013, is $47,400. This works out to a maximum amount of $501 per week.

Once you know how much EI benefits you’re entitled to, calculate your resulting budget shortfall, and start figuring out how you are going to address it. If you currently have debts, the first thing to do is tackle them head on; ideally, you should be debt-free prior to baby’s arrival. You will not only have more breathing room in your budget, but it will be one less stressor in your life. If you don’t have debt, but anticipate a budget shortfall during maternity leave, start building up a “reserve fund” to cover it. Add a little extra cushion in there, because things have a way of going awry when you’re least prepared for it.

The goal here is to deal with any potentially unpleasant money questions now, before post-partum hormones and sleep deprivation takes their toll and you have more pressing matters to attend to – like that little bundle of joy.

Don’t Forget the Taxes

Your Employment Insurance benefits are taxable. At the same time, almost no deductions will be taken off at the source by Service Canada. Depending on the timing of your maternity leave (calendar-wise), and whether or not you receive a top-up, you may end up with an unpleasant surprise come tax season. Figure out whether you need to set aside money to cover any potential tax liabilities. The worst time to owe taxes is when you have little money coming in, and no wiggle room in your budget (or worse, your savings). It is also important to remember that there are rules in place regarding the impact of income from “side hustles” on your EI entitlements – figure out how this affects your particular situation ahead of time.

Piggy Bank

Think about the Future

If you haven’t already made arrangements for this, it’s time to look into life insurance. At a minimum, the higher income-earning partner should put a policy in place to ensure that, in the event of their death, the rest of the family will not have to suffer unnecessary financial hardship. This is particularly important if you have significant obligations such as a large mortgage; deprived of the higher income, the surviving spouse and child(ren) may end up struggling not only with day-to-day expenses, but also keeping a roof over their heads. A life insurance policy can offer peace of mind in that regard.

The other thing you (and your spouse) should no longer put off is the making of a Will. While you may not feel that your current assets and finances justify the expense of retaining a lawyer, a Will is so much more than a document setting out your wishes respecting your estate. It is a way in which you can deal with the all-important issue of guardianship of your child(ren) in the event that both you and your spouse die before they reach the age of majority.

Thinking about worst case scenarios when you’re expecting a baby is probably the last thing you want to be doing, but it’s an opportunity to safeguard your family’s future security. Prepping for baby may seem overwhelming at times; just remember, you have 9 months to do it, and if you take all the necessary steps, you will save yourself a lot of stress over the following year (and beyond). Decorating the nursery might be a lot of fun, but don’t forget about the less glamorous, but all the more important parts of the preparation process.