New parents? Congrats on your new bundle of joy! We know adding a little one to the family can mean sleepless nights and extra stress, so TLFG is here to help. We've put together a quick and easy guide with must-haves for financial planning every parent should know about, along with potential saving opportunities.
Must-Haves:
Emergency Fund. The golden rule for your emergency fund is to save 3-6 months’ worth of living expenses in an easily accessible account to cover unexpected costs. This is to account for job loss, urgent home maintenance, pet emergencies, and any other unexpected costs that may arise. Don't be scared if your emergency fund isn't fully stocked; this is something you can grow over time.
Life Insurance. If you haven’t set up your life insurance policy yet, now’s the time! Funerals in Canada are expensive, often costing a minimum of $10,000, but your life insurance will cover way more than that. Daycare, dance classes, sports lessons, school tuition, summer camps—plus all the essentials. With life insurance, your family can maintain their standard of living. Bonus: If you go for a whole life insurance policy, you get a built-in savings plan you can use for expenses such as weddings, down payments, and more.
Also, consider adding a critical illness rider. It works like life insurance but kicks in if you’re diagnosed with one of the top 20 critical illnesses. This is crucial because you’ll lose a primary income source while still needing to care for your family. Critical illness insurance covers your lost income, loss of your partner's income for time they might need off for appointments or surgeries and unaccounted for medical expenses that are not covered by OHIP.
Create and Update Your Will. When you have kids, a will is non-negotiable. You’ll have to designate a guardian for your child and outline how your assets will be distributed, including your life insurance payout. Do you want your kids to get the insurance money at 18, or should their guardian have access to help raise them? Without a will, your wishes might not be honored, and things could end up in the wrong hands.
Feeling overwhelmed by all these new costs? Don’t worry—there are plenty of tax breaks for Canadians with kids.
Saving Opportunities:
RESPs. The famous RESPs are a fantastic way to grow your investments with government grants. The government will match 20% of contributions up to $2,500 each year, for a lifetime total match of up to $7,200. As long as your child has a SIN number, you can start saving asap.
Canada Child Benefit. Depending on your income, marital status, and your child's age, you might be eligible for up to $7,437 per child per year in tax-free support. You can apply for this benefit when registering your newborn's birth in your province or territory, online through your CRA My Account, or by mail if your local Service Canada office is closed.
Child Care Expense Deduction. Paying for nursery school, daycare, or day camp? You can claim up to $8,000 in childcare expenses for each kid under 7, and up to $5,000 for each child aged 7 to 16.
There are loads more savings benefits for Canadian parents, like regional grants and the climate action incentive. Check out the CRA website to see what you qualify for.
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