Monday, April 8th, 2019
I met up with friends of mine and their toddler for coffee recently, and they told me they were feeling strapped since having a baby.
They purchased their house — a small two-bedroom in the west end of Toronto — when they were both in their late 20s. Their monthly mortgage payments are about $3,200 a month, plus utilities, insurance and property tax. All together, they spend around $4,000 on housing.
Even though that's slightly over 50 per cent of their take-home pay, it was doable.
Because his salary was lower, he took the majority of parental leave for the first year. But they found it a struggle to pay their housing costs on employment insurance and only a single full-time salary with the addition of all their new expenses — a stroller, car seat, bottles, breast pumping accessories, diapers, nursery furniture, etc.
It didn't get much easier when he returned to work. Now they're shelling out about $1,500 a month to send their child to daycare.
Now it's making them feel out of control.
They're terrified of unexpected expenses, like if their car breaks down or if a windstorm knocks shingles off their roof. They sometimes wish they'd stayed in their old apartment and had $2,500 of extra room in their budget.
Based on a 2011 study plus inflation, it costs around $257,364 to raise a child from birth until age 18. And the first few years of a child's life are perhaps the most expensive, when they require intensive child care. The Canadian Centre for Policy Alternatives says that the cost of daycare is about $1,685 per month in Toronto and $1,400 in Vancouver.
It's impossible to predict how life will go, but is it possible to financially plan for a child before they arrive, or before you even start trying to have one? Here are some ideas to consider, if you're thinking about having a child:
If possible, you could try to find a job with a generous parental leave policy, a flexible schedule and an understanding work culture. Here's a list of 2018 winners from Canada's Top Family-Friendly Employers competition.
Consider focusing your earning power on paying off as much debt as possible before you have children. Debt can interfere with your cash flow if you're down to a single income or have a sudden increase in expenses. Removing debt obligations will free up money that you can put to better use.
When you don't have children, it can be exciting to have disposable income to spend on dinners and vacations, but balance that with growing an emergency fund. Although experts recommend about three to six months' of living expenses, try to grow it to a full year's worth, if you know you want children in the next three to five years. That way it can double as a baby fund for all the random expenses you'll find yourself with and you can dip into it during parental leave.
You may have a surprise pregnancy, or have a pregnancy on just a single income in the first place. But paying off debt, stashing cash and keeping your fixed expenses low is a good strategy for everyone, giving you fiscal room to manoeuvre for whatever the future holds.