The month of November was ‘Financial Literacy Month’, and after an introduction to some key family budgeting ideas from Interac, I spent the entire month thinking.
Adding a baby is expensive, and doing so while going through emotional and physical change can be even harder. The stress that comes with managing your family finances shouldn’t take away from your memories and bliss. We’re not going to preach about the percentage you should spend on housing or food, just give you a few ideas on how to be fiscally smart and learn some family budgeting basics.
1. Take advantage of Canada’s Benefits. The Canada Child Tax Benefit is based on your family income, and all may apply. Whether you qualify for this or not, the Universal Child Care Benefit, which totals $100 per month, (per child under six) is available to everyone. It is a taxable benefit, but still more than worth the quick application. If you are having a baby in BC, the hospital will provide you with forms upon discharge.
2. Set up an RESP if you can. Even if you can afford to only deposit their cash birthday and Christmas presents, it will have 18 years to grow, and especially in today’s market climate, by then surely the stock market will be on the upswing… Go into your bank, set up an appointment with a banker, and choose the best options together. The RESP is much more flexible than it used to be, so even if little Aidan chooses a community college over Queen’s University, your money isn’t lost.
3. List what is important to your lifestyle. Is missing date night going to kill your spirit and make you a grumpy parent? Why not cut out the coffee shop and choose a more frugal date option to cover the cost of the sitter?
4. Figure out your unnecessary spending. Could you take a lunch to work? Do your kids really need all of those paid activities? Could you replace one dinner a week with a simple sandwich night?
5. Credit cards. Yikes. If you pay a fee, is it worth it? Do you know what benefits you get from your card and actively use them (or are you one of the people at the car rental counter who still gets the optional insurance because you’re just not sure…)? Just like the gift cards that stores count on people losing, credit card companies know that most consumers won’t take advantage of the purchase protection on that new TV or the double warranty on your precious espresso machine.
6. Know your health benefits. If massage is covered, maybe that is just as good as treating yourself to a pedicure. When traveling, many families will buy extra insurance although the company already covers it.
7. Demand excellence. If your sippy cup’s valve doesn’t work, or the zipper on your baby’s jacket gets stuck, let the company responsible know. You are helping future consumers, and you may get a replacement.
8. Reconsider your relationship to charity. Others always need us. Instead of cutting your charities out of your life as the budget shrinks, why not donate your time? You and your kids may just receive the reality check you’ve been waiting for.
9. Shop smarter. We’re not exactly coupon clippers – who can find them in a full diaper bag? – but shopping at a well-priced store, and buying sales items while there can save you a bundle, plus help to create some variety in your diet.
10. Pay your bills on time. OK. Another one we’re not great on, but many companies offer debit directly out of your bank account or payment to your credit card. Just make sure all of your payments come out or are due around the same day so you can stay organized.
11. Think community. Finding a dentist, doctor and hairdresser in your neighbourhood could not only save time and stress, but also gas and greenhouse emissions.
12. Think big. Don’t blow a gasket about the small stuff. Paying too much for grapes or being a day late on the bills is nothing compared to not doing good research on buying a car, a house, or a new computer. Investigate your options, and in today’s economy, a little negotiation could go far. Getting a slightly better mortgage rate can save you thousands.
Most people say RESPs are the way to go in terms of saving for your child’s education, but that’s not necessarily the case. In fact, there are many different ways to save for your child’s education and RESPs are just one of the vehicles. My answer to the question is always, “It depends.” It depends on how much money you want to put away, what expenses you currently have, how much free cash you have on a monthly basis, what tax bracket you’re in … and the list goes on. Here are some options for you to save money for your child’s education:
(1) Registered Education Savings Plans: RESPs are a great way to save for your child’s education. You get a grant from the government (anywhere from 20% up to 40% depending on your tax bracket) that automatically adds to your contributions and you also get tax deferred growth. Plus, when your children go to school, they’re the ones getting
taxed – at a much lower rate than you would. Make sure that you pick a personal RESP. This allows you to control the money and how it gets invested, plus you can stop and start your contributions along the way without being penalized.
(2) Making contributions to a spousal RRSP: If you stay at home and look after the kids, your spouse can make contributions in your name. This could result in an even higher return on your taxes than the grant money you would get from the government. When it comes time for the kids to go to school, you could withdraw the money in your name at a lower tax bracket. Plus, if they didn’t go to school, you wouldn’t lose the tax credit that you got along the way, unlike RESPs, which require you to return all of the grant money if your child doesn’t go to a qualifying institution.
(3) Life Insurance policy for your child: Universal Life policies have an insurance component and an investment component to them. Not only is your child covered in the event of a tragedy, you have access to the money that builds up in these policies (tax deferred) for anything you want – not just education. In addition, you can ensure that your child can get up to $900,000 more insurance coverage over their lifetime.
(4) Invest in your child’s name: If you put money into your child’s name and the investment generates capital gains, the income is attributed to your child. (Dividends and income come back to you.) This money would be taxed yearly, but at a minimal rate at most. This allows you to have money that is free of any “government strings” requiring your child to go to a specific institution. Plus, it can be used at any time, without worry of tax implications. Buy a car for a 16th birthday, go on a trip to Disneyland, pay for braces, whatever you like.
(5) Savings account: Get your child saving money for his own education. It will let them feel a part of the process and get them started on developing good financial habits.
There are many different ways that you can save for your child’s education.
What’s best for you? That depends.
– Ryan Douglas CFP.