How to prepare financially for a new baby

June 6, 2013

By Sheryl Smolkin


When my daughter was born almost 34 years ago, a wise aunt told me that “babies bring their own love with them.” But they also bring sleepless nights, less family income while on maternity leave and lots of other bills like daycare when parents go back to work.

If you are planning a family, you can accumulate money in a tax free savings account for a year or more before you get pregnant. Funds you withdraw can be put back into the account in the next year or subsequent years without penalty.

You can also make an RRSP contribution, get back the tax return and put that money in your “baby fund.” Another option is to withdraw money from your RRSP in the year you and/or your spouse are off work and earning less income. However, think this option over carefully because once you withdraw funds from an RRSP, the contribution room is lost forever.

A birth mother who plans on nursing her baby may need to be the primary caregiver for most of the first year. Nevertheless, if the other parent has a generous Employment Insurance top-up for some period of time, it may make more economic sense for the other spouse to take a good chunk of the available parental leave.

Regardless of how you plan to split up the leave, speak to your HR department and make sure you fully understand both the Employment Insurance rules and provincial labour laws so you are in the best position to take full advantage of the available benefits and protected leave period.

For example:

  • You are eligible to receive EI maternity or parental benefits if you have paid premiums; your normal weekly earnings are reduced by at least 40%; and, you have worked at least 600 hours in the qualifying period (generally the previous 52 weeks).
  • Only a birth mother is entitled to 15 weeks of maternity benefits after a two week waiting period. However, parents can share the 35 weeks of parental benefits.
  • EI benefits are taxable income so federal and provincial income tax will be deducted from your benefits.
  • You will go back to your previous job or a similar job with the at least the same wages and benefits.
  • If you work while receiving EI maternity benefits, the entire amount you earn dollar for dollar will be deducted from your benefits.
  • Under the new EI while working on claim pilot project, when you or your spouse are on parental leave you will be able to keep 50 cents of your EI benefits for every dollar you earn, up to 90% of the weekly insurable earnings used to calculate your EI benefit amount.
  • To be eligible for job-protected adoption, maternity or parental leave in  Saskatchewan, you have to work 20 of the 52 previous weeks. Leave eligibility varies between provinces.
  • You must give your employer four weeks written notice prior to returning to work. An employer does not have to allow you to return until this notice is received.
  • You will continue to earn credits toward length of employment, length of service, vacation and seniority during periods of maternity and paternity leave.

When it comes to buying baby furniture, strollers, clothes and toys, take a deep breath and don’t rush. You will get generous unexpected gifts from everyone including the gang at the office. Also, babies outgrow things very quickly and their parents are usually thrilled to pass on gently used items to the next family who needs them.

Before our granddaughter was born, a friend of a friend brought over a huge box of sleepers and adorable outfits that allowed multiple changes a day for the first six months. At one point my daughter lulled the baby to sleep in an old fashioned wind up swing that had been making the rounds from family to family since the 1980s.

The only items you will probably need to buy are car seats of various sizes as the safety rules are constantly evolving. All car seats sold have an expiry or useful date on them and Transport Canada says they must be discarded after that date. Also, a car seat or booster seat made before January 1, 2012 may not meet the current standards set out by Health Canada.

Finally, ask other new parents for a list of things they actually found useful. While every baby is different, my daughter discovered that when all else failed, “baby wearing” was a foolproof way of getting the baby to sleep. She used various wraps and front/back carriers that changed with the age and size of the baby.

She also swears by a white noise machine that drowns out street sounds in their urban Ottawa neighbourhood.

No matter how well you plan, nothing can prepare you for the joy and the sheer terror of becoming a parent. But if you put some thought into how you will manage financially when your family grows, hopefully the only thing that will keep you up at night is the 2 AM feeding.

How did you plan financially for a new addition to your family? Send an email to so*********@sa*********.com and share your ideas with us. If your story is posted, your name will be entered in a quarterly draw for a gift card. And remember to put a dollar in the retirement savings jar every time you use one of our money-saving ideas.

If you would like to send us other money saving ideas, here are the themes for the next three weeks:

13-Jun Father’s Day Frugal gifts your father will love
20-Jun Graduation How to use social media to find a job
27-Jun Summer activities Inexpensive summer activities for kids
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