-- TD Canada Trust provides advice to expecting parents on how to plan and save for their new bundle of joy and a year-long parental leave -
- TD INFOGRAPHIC ON HOW TO BUDGET AND SAVE FOR PARENTAL LEAVE IS AVAILABLE AT: www.smrmediaroom.ca/TDParentalLeave -
TORONTO, Nov. 5, 2012 /CNW/ - From diapers and baby food to childcare and toys, caring for a newborn and affording a year-long parental leave can be expensive. The key to enjoying the first year of parenthood, instead of worrying about your finances, is careful planning and smart saving.
Thankfully, most Canadians are on the right track. According to research by TD, 72% of Canadians say they would use savings to start a family and plan for a year-long parental leave, compared to 28% who would have to rely solely on other sources like the generosity of family or friends, loans or credit cards. However, almost half of Canadians (46%) admit they would be comfortable taking on debt to finance their new family.
"The cost of caring for a baby can increase your annual expenses by up to $10,000 in baby's first year," says John Tracy, a senior vice president at TD Canada Trust. "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 father of two young boys, Tracy provides his advice on how to plan and save for a year-long parental leave:
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% of your income) when your little one arrives, and add some buffer to cover life's little surprises, such as extra medical needs or even twins! Remember, before you can start receiving employment insurance benefits there is a two week waiting period during which you will not be paid, so ensure you have buffer in your budget to cover this gap, too.
2. Set up a tax-free savings account (TFSA) and start saving
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.
"It can be hard to find money to save for your family's future when you have bills to pay today," says Tracy. "If you're having trouble saving, start small, set up an automatic transfer and gradually increase your savings. If money is tight, sit down with your family or a financial advisor to look for ways to compromise on your current living expenses so you have more money to save."
3. Consider the implications of parental leave on your RRSP
"Even a short departure from the workforce, like a one year parental leave, can impact the value of your retirement nest egg," says Tracy. "Where possible, try to stay on track with long term investment plans while on parental leave. 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 Tracy says it can be hard for couples to start the dialogue. "The bottom line is that you need to ensure you're financially aligned before your baby arrives," he says. "You need to have frank conversations about the financial realities of parenthood and how you will work together through the emotional and fiscal implications of a one-income household."
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. For example, 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. You may also be able to deduct child care expenses from your income when you're filling out your tax return, so make sure to keep receipts for your child care expenses—from nannies and day care to nursery schools and sports programs.
For more information on planning for parental leave, please visit http://www.tdcanadatrust.com/planning/life-events/having-a-baby/parental-leave/index.jsp.
About the TD Canada Trust Report on Savings
TD Bank Group commissioned Environics Research Group to conduct an online omnibus survey of 1,022 Canadians 18 years of age or older. Responses were collected between January 23-27, 2012.
About TD Canada Trust
TD Canada Trust offers personal and business banking to more than 11.5 million customers. We provide a wide range of products and services from chequing and savings accounts, to credit cards, mortgages and business banking, to credit protection and travel medical insurance, as well as advice on managing everyday finances. TD Canada Trust makes banking comfortable with award-winning service and convenience through 24/7 mobile, internet, telephone and ATM banking, as well as in over 1,100 branches, with convenient hours to serve customers better. For more information, please visit: www.tdcanadatrust.com. TD Canada Trust is the Canadian retail bank of TD Bank Group, the sixth largest bank in North America.
SOURCE: TD Canada Trust
For further information:
Sandra De Carvalho
TD Bank Group