VANCOUVER (NEWS1130) – The cost of outfitting a new baby can get quite expensive. A high number of people in our province are tapping into their savings to pay for those expenses.

TD Canada Trust Senior Vice-President John Tracy says it’s OK to do that as long as you’re not foregoing other goals you may have had, like buying a home or saving for retirement.

“The longer you can make that planning horizon the more you can save for a child without disrupting those incredibly important things.”

However, he understands sometimes a baby can come unexpectedly.  “If you find yourself in circumstances where you weren’t able to plan, perhaps you can look at debt consolidation, something to reduce the amount and the cost of the debt.”

Tracy says caring for a baby can increase your annual expenses by up to $10,000 in just the first year.  

“The key to affording your new little bundle of joy, without taking on too much debt, is to understand the true costs of your parental leave and then work with your partner and a financial advisor to create a realistic budget and a savings plan to meet your goals.”

A recent poll found 69 per cent of British Columbians use their savings to start a family and prepare for a year-long parental leave, while about 30 per cent rely on the generosity of family or loans and credit cards to pay for their baby expenses.

Tips:

1. Understand the true costs of parental leave and write a budget

Consider what additional expenses lay ahead, such as new furniture, baby supplies, food, clothing and toys, and add them to your list of regular expenses.  Make room in your budget so you can keep saving (ideally 10 per cent of your income).  Remember, before you can start receiving EI benefits there is a two-week waiting period.

2. Get a tax-free savings account

To save that extra $10,000 for baby’s first year, you would need to find $250 per week for nine months, so planning and saving ahead for several years is ideal.  A TFSA is a great saving tool, because you’re not taxed on the income you earn and you can withdraw your funds tax-free at any time.

3. Consider the implications on your RRSPs

In some cases, a spousal RRSP can be a smart family saving strategy by helping the lower-income spouse save and entitling the higher-income spouse to a tax deduction. Another way to boost your retirement savings is to invest your tax refund into your RRSP.

4. Have open and honest conversations with your partner

Talking openly and honestly about money is an important part of establishing a healthy financial foundation with your partner, but it can be hard for couples to start the dialogue.

5. Speak to an expert at your bank

Find out if your new family qualifies for any government benefits or tax incentives, and speak with an advisor about updating your financial plan. The Universal Child Care Benefit is a government program that gives Canadian families $100 (pre-tax) each month for each child under the age of six.