The New Parent Checklist

Author: Cassandra San, Financial Advisor

The New Parent Checklist

Entering parenthood is no easy task. While this time in your life is full of excitement and anticipation for your newest addition, it can also be overwhelming and somewhat daunting. From preparing your nursery, reading parent books, and participating in parental programs to simply growing and making space for a new little human to join your family, life gets busy fast.

Your finances and financial needs are also going to be changing with the newest addition. Here are a few considerations to be mindful of as you embark on this journey.

Changes to Expenses

A household budget is a great place to start if you do not have one in place already. It not only helps keep track of where exactly your money is being spent, but also what your finances will look like once your baby arrives. Understanding your household cash flow will identify the best uses for those dollars for the family. It’s never too early to start a savings account for your little one. It is estimated that a child can cost an additional $10K-$15K annually to household expenses until they are 18. That isn’t cheap! Preparing your budget for adjustments and future planning can give peace of mind after the newest addition arrives.

Changes to Income

Discussing maternity/parental leave with your spouse or partner will help paint a picture of what the first year will look like. Are you eligible for paid leave? If either of you are self-employed, parental leave is not applicable, even if you are technically an employee but are working as part of a family business. Will just one of you take time off or will you split it? What will be your monthly take home as a household in these situations? Discussing and planning for income changes ahead of time will reduce stress and anxiety and provide a healthy focus on your family’s future.

Protecting your newly expanding family

Reviewing or implementing proper insurance plans such as life insurance, critical illness insurance and/or disability insurance is essential to a financial plan. Keep in mind it is not only yourself or your spouse that you are responsible for, but this special individual entering your life. Remember, personal insurance is based on health. If you are a female, it is especially important to be proactive in this area as pregnancy diagnoses such as high blood pressure and gestational diabetes play a big role in your insurability. It is also a good to review and be up to date with your health benefits. This will help alleviate any surprises in delivery and newborn care.

Preparing for the unexpected

Have a Will prepared: Getting your Will done prior to your child being born (when you have more free time) will save the challenge of doing this when you are adjusting to the changes of your growing family. You can have a Will prepared before you know the name of your child. We recommend clients keep the Will generic to include all children through birth or adoption which includes all future children without needing to change the Will.

Decide on an Executor: The Executor is responsible for making sure your wishes outlined in the Will are completed.

Discuss with and include a Guardian: A Guardian is the person(s) responsible for raising your kids if you and your spouse or partner pass away before they reach the age of majority (19 in BC).

Receive permission from the people you would like in these roles before you finish your Will. There is a lot to consider and conversations to be had with the different parties involved which can lead to families procrastinating getting their Wills done. Securing your children’s future in the unlikely circumstance that you are unable to raise them is better than the alternative of having nothing in place.

Saving for their future

RESPs are often top of mind for parents once they know they are expecting. While eighteen years will pass before you know it, RESPs are also the most fluid part of preparing your finances. The RESP industry is saturated with different plan options with pros and cons to each plan, some of which have punitive penalties if you change your mind and want to move your money out of the plan. Being proactive in saving for your child’s post secondary education allows you to maximize the twenty percent matching the government offers (within annual limits) and provides a great incentive for post-secondary saving. If your budget is tight, starting with $50/month could add up to almost $24,000 by age 18 assuming a 6% rate of return including the government grant. Having a conversation with your financial advisor before setting up a RESP will ensure you are picking the best plan for your budget and your family’s future.

A couple of last items

Register your child’s birth.
Apply for your child’s Social Insurance Number which is needed to open a RESP.
Apply for the Canada Child Benefit. The Automated Benefits Application on the provincial birth registration form allows you to apply for the Canada Child Benefit, the GST/HST credit, and related provincial or territorial programs for your child. It is good to be aware of the different programs that are put in place to support new parents that expand across different situations such as aid with a disabled child.

Your family’s financial needs are forever going to be changing as your family journeys through different stages of childhood. Talking to your Connect Wealth financial advisor to build a plan that fits your unique life stage and financial circumstances will help you transition into parenthood with peace of mind and expectation for the future.

Connect Wealth is an independent financial planning firm that offers holistic advice to clients based on their current goals and future aspirations. We use well-established workflows and cutting-edge technology to maximize planning efficiencies while simplifying the process for clients. Learn how you can maximize your financial opportunities at www.connectwealth.com

Saving For Retirement

What Are Your Options?
What is the best investment plan to use to save for retirement? It used to be fairly simple; the answer was maximizing your RRSP. Do you know what is the best strategy for your situation? Do you know what your options are?

Here is a basic overview:
1. Save – The first rule of thumb to be concerned about is that you are saving money for your future. Too many Canadians are spending all of what they earn and not putting away any money for their future. A good place to start is to aim at putting away 10% of what you make.

2. Tax Efficient – Ever since the launch of the TFSA, there has been a debate by financial professionals over which investment plan is more tax efficient to use, the RRSP or TFSA? My opinion is that it depends on your situation both now and in the future and should be looked at on a case-by-case basis to see what fits best. I would be cautious if a financial advisor is always only promoting one plan type over the other, both have their benefits. (For more info on TFSAs, see my article from Sept 2013 – http://jaybrecknell.ca/demystifying-tfsa/)

3. Business Owner – If you are a business owner the question can get even more complex as you have more options. Should you use your RRSP, TFSA or instead save your retirement funds in a holding company? Since corporate tax rates are at an all time low in Canada more business owners are saving corporately versus in a RRSP or TFSA. There can be many benefits to saving corporately as it can provide flexibility to the business owner. As this can be complex it needs to be put together by a professional that understands your corporate structure and the tax and legal rules that are involved.

As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

Questions?

December 1, 2014/by Vince Olfert

Insurance, Personal Planning

Protecting Your Biggest Asset

The Most Overlooked Risk
What is your biggest asset? Most people might answer your house, boat, car, or investments. When in fact it is your income and your ability to earn a living.

When I review a person’s financial situation, one of the most common areas that is overlooked is to protect their ability to earn a living. Disability insurance is a critical part of a person’s risk management plan. When you think about all of the things that people have insurance for, cars, houses, electronics, death, etc. Unfortunately if you do not have an income all of these other areas fall apart.

When it comes to managing risk, a financial planner looks at two main factors:
1. Risk – what is the chance of this happening?
2. Impact – If it does happen, what is the potential damage?

As an example, the risk of a house fire is low but the damage it can cause financially is extreme. Hence why people buy home insurance.

The Risk Is High:
Did you know that 1 in 3 people, on average, will be disabled for 90 days or more at least once before they reach age 65?*

The Impact Can Be Severe:
How long could you survive for without your income? Most families could last maybe 4 to 6 months before they would have to start selling other assets such as investments or their home. How would you survive till age 65 and then into retirement?

The main way to manage this risk is to have long term disability insurance to protect yourself in case of an illness or injury.

Possible Options:
1. Canada Pension Plan – This will only pay for the most severe disabilities and the amount is small.
2. Worker Compensation – This only covers you if it is a work related injury.
3. Group Plan – This is how most Canadians are covered. IMPORTANT! You should have your coverage reviewed to make sure you are properly protected.
4. Individual Plan – You can purchase this through the major insurance carriers.

Key Facts:
• If you are an executive or earn over $80,000 per year and you have group coverage you should have it reviewed, as you may not be fully protected.
• If you have group coverage your plan definition typically will change after 2 years of being disabled. This can allow the insurance company to decline your coverage if your disability is not severe enough. This is done to keep your rates lower for your group plan. You can get individual insurance to protect against this.
• The definition of a disability policy is critical.
• Most disability insurance is designed to cover you till age 65; some may have only a 5-year benefit period.

Questions?

*Source – “A guide to disability insurance”. Canadian Life & Health Insurance Association

December 1, 2014/by Vince Olfert

Investments, Personal Planning, Retirement Planning

UK Pension – Left Behind…

Did Your Pension Move When You Did?
Do you have a UK (United Kingdom) pension? There are a good number of British expatriates who are now Canadian residents that have pensions back in the UK. Have you forgotten about that plan from an old employer? Do you know your options?

When I create a retirement plan for a client I review what savings and pensions they may have. Quite often, past pension plans can be forgotten or misplaced, so this exploratory part of the process is critical so that nothing is missed. Read more

December 1, 2014/by Vince Olfert