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personal finance

Jacqueline Hunkele

As any new parent will tell you, the arrival of a first, or subsequent, baby changes everything. In much the same way they turn your lifestyle upside down, the arrival of children will also disrupt your previous long and short-term financial goals, says Tina Tehranchian, a certified financial planner with Assante Capital Management Ltd. in Richmond Hill, Ont. "You need to revise your entire financial plan. You throw the old one out and sit down at the drawing board."

Here are Ms. Tehranchian's tips on how to calculate the immediate and longer-term cost of children:

1 Build up your short-term savings: The first thing you should do when you find out that you are going to have a baby is to beef up your emergency funds. Figure out how long of a maternity leave you wish to take. Unless you can live comfortably on one income, you need to rein in your expenses, revisit your budget and see where you can cut costs. Also, try and save as much as possible in a liquid high-interest savings account that you can access when you start your maternity/paternity leave.


2 Revise your goals and update your financial plan: The arrival of a baby, especially your first child, is a complete game-changer. This is a great time to review your life goals and to update your financial plan, taking your new lifestyle and revised goals into account. If your goal was to retire at 55 or renovate your kitchen, perhaps the arrival of child means you will funnel the money to cover day-to-day costs and instead delay retirement or choose to make do with your current kitchen for a few more years.

3 Budget for the baby: According to the Canadian Council on Social Development, "raising a child can be an expensive undertaking, with the first year being the most expensive." In 2004, over $10,000 was needed to raise a child to age 1. You need to plan and budget for the expected costs, which include food, diapers and babysitting, as well as all the assorted baby gear, such as the clothing, crib and stroller.

The Invest for Life series:

  • Part 1: Ten money tips for young people
  • Part 2: Ten money tips for people entering the work force
  • Part 3: Getting married? Ten money tips
  • Part 4: Having kids? Pull out the wallet and get set to invest for the future
  • Part 5: Married, with kids? Ten investing tips
  • Part 6: Financial tips as you climb the financial ladder
  • Part 7: Preparing for retirement: 10 tips
  • Part 8: The retirement years: 10 financial tips

4 Think about protecting your family: Once a baby enters the picture, protecting your family against risks like premature death, a long-term disability or a critical illness shoots up to the top of the priority list. This is a good time to review your estate planning and life insurance needs. Also, check out your group insurance plan to make sure you have adequate long-term disability insurance and if not, top it up with a personal plan.

5 Update your will: The arrival of a new baby is a good reason to write a will, if you don't already have one, or to update your existing will to make provisions for a trustee and guardian for your new child and all future children.

6 Plan for your baby's future: Saving for your children's education by contributing to an RESP is a prudent strategy and lets you take advantage of a 20-per-cent matching grant from the government, to a maximum of $500 per year per child. You have to apply for a social insurance number for your baby to be able to set one up, so make that a priority after your baby is born.

7 Budget for your children's activities: As your children grow, they might want to participate in extracurricular activities, like skiing, music lessons, or summer camp. Incorporate this into your family's financial plan. Budgeting is a work in progress and must be done on a regular basis.

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