4 financial tips for parental leave

From diapers and baby food to childcare and toys, caring for a newborn and affording a yearlong parental leave can be expensive.

But most Canadians are on the right track—72% would use savings to fund parental leave, compared to 28% who would have to rely on the generosity of family or friends, loans or credit cards, finds a TD survey.

“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.

Read: How do children affect your career?

Troubling still is 46% are comfortable taking on debt. Here’s how to plan and save for a yearlong parental leave.

1. Make a budget

Consider additional expenses, such as new furniture, baby supplies, food, clothing and toys. Make room in your budget so you can keep saving (ideally 10% of your income). Add some buffer to cover surprises, such as medical needs. Remember, there’s a two-week waiting period before you can start receiving employment insurance benefits.

Read: When family duty alters retirement plans

2. Learn about tax incentives

Find out if your new family qualifies for any government benefits or tax incentives. 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 can also deduct child care expenses from your income when you’re filling out your tax return, so keep receipts for child care expenses—from nannies and day care, to nursery schools and sports programs.

Read: Are your clients paying too much tax?

3. Set up a TFSA

To save that extra $10,000 for baby’s first year, you need to find $250 per week for nine months. 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.

4. Consider the implications on your RRSP

Tracy says a spousal RRSP can be a smart family saving strategy because it helps the lower-income spouse save and entitles the higher-income spouse to a tax deduction. Another idea is to invest your tax refund into your RRSP.

Read: Stress testing your retirement plan