How Much Does It Cost to Bring Up a Baby?

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Last updated on May 30, 2021

When my wife Brittany told me she was pregnant, I was pretty excited. She’d dreamed of having kids her entire life and I was honoured to be the one who ultimately helped facilitate that dream coming true. I also got a kick out of thinking what a child raised under our influence could possibly be like.

But not more than 24 hours later, my state of euphoria had worn off as I went into full panic mode wondering how we were going to pay for this child. Especially now, with COVID-19 affecting jobs everywhere (nearly 2 million jobs were lost in April, alone), among its other consequences on Canada’s economy. My wife has consistent income as a graphic designer for a conservation authority, and I’ve been a full-time journalist for over a decade. But when you’re a freelance writer, even without an international health pandemic, your income is often up and down, and I feared the impeding financial struggle of raising a child during those inevitable lean months.

As of this writing, the birth of my child is only three short months away and while I’m furiously adding to my client list and stacking assignments at lightning speed, I’m still wondering if I’m missing something. Is there anything I should be doing to save money and how much should that number be in this life changing baby’s first year?

Keep reading to learn about the expected (and unexpected) costs that come with your child’s first year of life, and how you can start saving for them.

The Average Cost of a Baby in the First Year

Estimates on how much a baby costs in the first year can vary widely depending on the parents’ income.

“The more money you make, the more you tend to spend on stuff for the baby during the first year,” says Robyn Thompson, president and founder of Castlemark Wealth Management, a Toronto-based boutique investment firm serving high net-worth individuals and their families.

While Canada does not have a definitive estimate, the U.S. Department of Agriculture (USDA) releases a report on the cost of raising children; expenses are comparable.

“The first year of a child being born usually costs about 7,000 USD for annual household incomes less than $41,000 USD, $10,000 USD for households of incomes up to $70,000 USD, and then $15,000 USD for income north of $70,000 USD,” says Thompson, citing statistics from the USDA.

Though it’s difficult to find the cost of the first year of raising a child averaged out across Canada, GreedyRates conducted an in-depth study examining the spending habits of Canadians over the last decade (2010-2020). Using research from the Canadian Centre for Policy Alternatives, we broke down average daycare costs per month in several of Canada’s major cities:

Daycare Costs in Canada

In addition to possibly daycare, essential items on your shopping list in the first year of raising a child may include:

  • Bassinet ($54.99 – $819.42)
  • Crib ($187.97 – $548.99)
  • Car Seat ($89.93 – $506.97)
  • Stroller ($59.97 – $699.99)
  • Diapers ($50/month at least)
  • Formula ($7.97 – $54.97)
  • Change Table ($99.97 – $369.99)

While these expenses are essential, most non-discretionary expenses like cribs, bassinets, strollers, and car seats have mandated safety standards, so a cheaper stroller is just as safe as a top-of-the-line stroller.

Childcare costs should also be considered, especially if both parents plan to return to work after the first few months. Thompson says childcare can range from a few hundred dollars a month to $2,000 a month or more.

What You Need to Do to Cover Baby’s First Year

To afford the varying expenses of a baby's first year, save 20% of your after-tax income

To afford the varying expenses of a baby’s first year, Thompson recommends saving 20 percent of your after-tax income. You can do that in various ways.

For my wife and I, saving meant house-sitting for her aunt for three months and socking away our savings into a tax-free savings account (TFSA). A TFSA is a great way to save the money you earn without having to pay tax on it, and GreedyRates recommends Tangerine’s Tax-Free Savings Account because the virtual bank charges zero monthly or transaction fees and offers a 2.25%* interest rate to new clients for the first five months on your first Savings Account. New clients earn 2.25%* interest when you open a Tangerine Savings Account and Chequing Account with $150 bonus when payroll requirements are met. Altogether, this is significantly higher than most TFSAs.

While Thompson appreciates the tax-free aspect of the TFSA, she thinks we could be doing more. “It’s important to save, but also ensure that it’s invested,” says Thompson. “Make sure the money you’re saving for your future is not just sitting in a low-interest account where you’re only making 25 basis points. It needs to generate a rate of return to help that money grow.”

Meanwhile, I’m also picking up more writing gigs and ongoing clients that exploit my unique status as a father-to-be with a disability. Thompson says extra work and side hustles are great for raising your income, but do them in advance of the baby’s arrival.

“More work is great, but taking care of yourself is first priority. The last thing you want to feel is overworked as you suffer through sleepless nights, so generate your extra income in the months leading up to or during pregnancy,” she says.

It’s equally as important to properly manage your money, too, given the financial instability the coronavirus has created for many families.

As for saving on extra expenses, we have family and friends who’ve had kids and have generously committed to sending us clothes, furniture, and toys free. Baby showers can also help, as family members sometimes go in on big-ticket items like strollers, cribs, and car seats. I work from home, so I will be covering a lot of the childcare when my wife goes back to work, but I will also need time to write and interview, so family members could be called upon to babysit from time to time, which can help cut into daycare costs.

Surprise Expenses You Didn’t Expect

Canadians are entitled to up to 63 weeks of maternity leave, and employment insurance maternity benefits are paid for 15 weeks with parental benefits paid for 35 weeks up to 55 percent of their insurable income and 80 percent for low income families, so unless your employer tops you up (not all of them do), there’s going to be lost income.

Things can get even tighter if you’re taking on surprise expenses unique to your situation, such as needing formula ($1,000 to $3,000 a year, depending on the brand) or a nursing bra ($45).

Some consultants, particularly if mandated by a doctor or organized through the hospital, are covered by provincial health insurance plans, some are covered by supplemental health insurance benefits, while others in private practice are not.

If you do have extra expenses or need to make up for lost income, Thompson recommends cutting discretionary spending.

“You’re going to need to get out of the house once in a while, especially after the baby comes, but leading up to their arrival and in adjusting to your new reality. It’s important to make some cuts, especially if you find yourself in the red,” says Thompson.

So, going out to movies or restaurants and all non-essential shopping trips or travel are definitely out.

“The last thing you want to do is pay 20 percent interest on a credit card, while you’re trying to save 20 percent of your income for the baby,” Thompson adds.

What About Insurance, Wills, and Tax Breaks?

According to the Angus Reid Institute, 51 percent of Canadians do not have a will, but you need one if you have a child because you need to assign guardianship.

As a result, a will is something you should prepare or update soon after your child is born to protect not only your assets but also your beneficiaries and dependents. It can cost anywhere from $0 on do-it-yourself websites to a few thousand dollars if you need a lawyer to sort out a complex estate.

If you don’t already have a legal will, consider using Willful.co, a leading Canadian website that guides you through the process of creating a customized legal will to execute your wishes and protect your family. The process takes about 20 minutes, doesn’t require an expensive lawyer or notary, and will only cost you $99.

To get you started, we’ve got an exclusive discount for our readers for $20 off any Willful plan when you use the PROMO code “GREEDYRATES”!

On par with a will on your priority list should be insurance, and if you want to prioritize by type, life insurance.

“Often, people tend to put insurance and wills at the bottom of their to-do list just because they become so busy in the business of having a baby, but life insurance is there to protect the people who are left behind,” says Thompson.

The younger and healthier you are, the cheaper the life insurance premiums. For example, at 34 years old, I pay $19.80 a month for $100,000 of term-to-65 insurance, which means it will be awarded to my beneficiary if I die before the age of 65. $100,000 could help pay for my child’s university tuition or help my wife pay off a mortgage and remove financial burdens of my passing.

There are other types of insurance like disability to cover you if you cannot work due to a critical illness or if you get diagnosed with a critical illness and survive more than 30 days, but multiple premiums a month can add up, so if you can only afford one, make life insurance the priority. If you’re able to financially, you can even consider taking out a life insurance policy for your child

Keep in mind that COVID-19 has affected life insurance in Canada, so make sure to do additional research when comparing quotes from insurance providers.

To lessen the cost of having a child, there are federal and provincial tax benefits available to parents. Some of them are awarded based on income or only available in certain provinces. They include the following:

  • The Federal Child Tax Credit – $2,191 for each child under 18.
  • The Childcare Deduction – The spouse with the lowest income can claim up to $7,000 for each child under seven and $4,000 per child seven to 16.
  • The Universal Childcare Benefit – $100 per month for all families.
  • Canada Child Tax Benefit – Based on your adjusted family net income for each tax year (use this calculator to find out what you get).
  • Canada Child Benefit (CCB) Top-Up – On top of the Canada Child Tax Benefit, the federal government is providing Canadians with additional financial relief during COVID-19. With the CCB top-up, parents can get up to $300 more for each child under the age of 18.
  • National Childcare Supplement – A federal childcare supplement for families with annual net income of less than $24,800. The amount is $181.41 per month.
  • Registered Education Savings Plan – Allows you to save up to $50,000 for your child’s education with the government providing up to $7,200 in grants. It also allows you to save that money in a lower tax bracket. Your child needs a social insurance number to qualify.

To learn more about the Canada Child Benefit, watch the video below:

Costly but Doable

Though having a child is expensive, it doesn’t have to put you into debt—particularly if you use the right strategies for saving money by preparing in advance.

So, do what we’re doing: try to house sit, borrow, or get contributions for clothes or big-ticket items, don’t always buy top-of-the-line, look to increase your income, and take advantage of government incentives and tax-breaks.

“An eye to income and preparing in advance of having a child is very important,” says Thompson. “This includes saving and looking towards the future before the baby arrives. Having a child is very stressful, particularly in the first few months, so you want to make sure you put your family on sound financial footing.”

Final Word

Having a child, especially for first-time parents, is always stressful and full of unexpected expenses. But it’s even more stressful during an unprecedented worldwide pandemic like we’re currently experiencing with the coronavirus. If you’re expecting a child in the near future, it’s important to take further considerations when planning your finances, life insurance, and the financial relief you may be eligible for.

Keep the above advice in mind, and hopefully your only challenge when the baby comes will be getting your eight hours of sleep.

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Author Bio

Aaron Broverman
Aaron Broverman is a freelance writer based in Toronto. When he’s not writing about money for publications like Yahoo Canada and GreedyRates, you’re likely to find his nose in a comic book. He likes comics so much, he hosts a podcast called Speech Bubble where he interviews those involved in the comic industry. You can follow him on Twitter: @broverman

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