4 Financial Tips for New Parents to Financially Protect You and Your Child
Having a baby is exciting news for first-time parents. But raising and educating a child involves new financial considerations and new decisions to make. As well, unforeseen events require you to have contingency plans in place. We hope these four financial tips for new parents will help you plan ahead to protect you and your child.
1. Update Your Financial Plan
The arrival of your child may have disrupted your previous short-term and long-term financial goals. Consequently, the first thing you may wish to do is to review and update your financial plan to budget for new expenses such as childcare and to incorporate saving for your child’s education. You may wish to ask yourself what your financial goals are for your child’s milestones, and whether your retirement savings will still be on track after reaching these goals.
2. Open a Registered Education Savings Plan (RESP)
Your child’s university or college education may seem far into the future and is likely not the first thing on your mind while you are focusing on the early years of your child’s development. Starting the process of saving for your child’s education will ensure that they are set up for future success. Setting up an RESP is a fairly straightforward process and can be done through your financial institution or a company that specializes in RESPs. With every RESP contribution, the government will contribute an additional 20% on the first $2,500 that you contribute each year (a maximum of $500 p.a.). There are no annual contribution limits or limit on the number of RESPs you can open, but the maximum contribution you can make is $50,000 per child up to a 31-year period. The government’s contributions can add up to $7,200 over the lifetime of your child’s RESP—essentially “free” money—and a portion of the RESP balance (your original contributions) can be withdrawn tax-free when your child enters post-secondary education with the remainder of the withdrawal taxed in your child’s hands, meaning little or no tax is paid. Of course, the contributions are invested, so the earlier you start the longer the balance has to gain in value.
3. Consider Insurance for You and Your Spouse
You may wish to consider life and disability insurance for you and your spouse. Both life and disability insurance can help you protect your child by ensuring financial resources are available if something happens to either of you. While some employers offer insurance, you may wish to make sure that the coverage will be sufficient to pay for expenses such as a mortgage, childcare, and household expenses over a reasonable timeframe.
4. Update Your Estate Plan
Who will take care of your child if you and your spouse die without a will? If you have no will stating your intentions, all core decisions may be left to the court system. Your baby’s arrival is a good reason to draft a will If you don’t already have one. If you do, you may wish to update your existing will so that it indicates who you would like to serve as guardian to care for your child in the event you can no longer do so. Additionally, a trust set out in your will can distribute assets to your children according to the terms and conditions you’ve established, avoiding probate fees and minimizing taxes.
We advise you to consult a trusted professional who is well versed in the area of interest for each of the above points to assess your particular situation. At Bloom Investment Counsel, Inc. we are happy to work with all your trusted partners to protect, preserve and build lasting family wealth.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.