A bundle of joy need not bust your budget

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Lisa Morgan could be saving for a trip to Europe. Instead, she and her husband are quietly stashing her quarterly bonuses in a baby fund.

The couple, who bought a house in Beeton, Ont., a year-and-a-half ago, want to save $12,000 by the time their baby arrives, hopefully in the summer of 2013.

That money will ensure they won't have to lower their mortgage payments during the year that Ms. Morgan will be on maternity leave. It will also provide them with financial security at a time when they will be living off just one salary.

"I don't want to have to scrape to make ends meet. I want to be able to take the year off and know that we will be fine," said the 27-year-old radio host.

Not all aspiring mothers-to-be are as money savvy as Ms. Morgan. But new parents agree that in addition to disrupting your sleep and social life, a baby will also throw a wrench in your household finances.

"Financial strategies that you have put together for a life without a baby will not work for a life with a baby," says Alexandra Macqueen, a certified financial planner and the co-author of Pensionize Your Nest Egg.

The first step for people embarking on parenthood is to draw up or modify an existing budget. If one parent is going to spend a year at home with the baby, calculate how much you will need to save to make up for that loss of income.

"Your priorities will change when you have a baby so you might want to cut down on your longer-term saving goals to focus on the short term," says Tina Tehranchian, a certified financial planner with Assante Capital Management Ltd.

"If you have debt, try to aggressively pay that off. The last thing you want to do is resort to using a credit card while you are off."

Another major expense new parents face is the slew of costly baby gear: furniture for the nursery, a stroller, assorted clothes and a high chair, to name a few. Getting used stuff is one way to cut costs, although items such as a car seat should be purchased new.

Having a fund for emergencies becomes even more important with a baby en route and the family counting on each paycheque, Ms. Tehranchian says. In order to be safe, she suggests setting aside six months of income or ensuring that you have access to credit.

Certain costs could fall once the baby arrives. For instance the ensuing lifestyle change can be conducive toward sticking to a budget. "Once the baby comes you will not be eating out or going to the theatres. So your adult entertainment costs plunge," Ms. Tehranchian says.

Parents who are flush with cash can start saving for their child's education by contributing to a Registered Education Savings Plan. You have to apply for a social insurance number for your baby to set one up, which you can do immediately after he or she is born.

Caroline Nalbantoglu, a registered financial planner with PWL Advisors Inc. in Montreal, says that while most new parents know they need to buy life insurance, disability coverage – which will provide protection for the mother during pregnancy – also becomes important.

A new addition to the family means it is time to update your will. "You want to make sure you have chosen guardians and set out specific wishes for your child," Ms. Nalbantoglu says. "You need to have a trustee who will look after their assets while they are a minor."

While many parents do think about the costs associated with the first year of having a child, few look at the longer-term financial implications. For example, once the first year ends, parents often struggle to secure affordable childcare.

Ms. Macqueen says that many couples she meets are having children at a time when they are already saddled with a big mortgage. So having one parent stay home or reduce their work hours to look after a first or subsequent child is often just not financially feasible.

And the costs do not end there. "You think the expenses will taper off after the first year, and things like diapers and daycare do end. But when kids get older, they eat like adults, they need to travel with you on vacations and they take various lessons," Ms. Macqueen says.

Her point? "Babies are expensive, but kids are also expensive. The decision to have a kid is a lifelong financial commitment."

Back in Beeton, Ms. Morgan is undaunted by the financial challenges that lie ahead. She and her husband feel that if they could afford it, she would be pregnant already.

And with a firm plan and some frugal living, that trip to Europe might still be in the cards. "I was hoping to go see my oma in Holland. Hopefully we can still go and bring her a great-grandchild."