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Where's There's a Will, There's a Way. Certified Financial Planner, Alyx Gilgunn answers our questions.
Alexandra (Alyx) Gilgunn is a Certified Financial Planner in Victoria, BC. She teaches free financial planning workshops at Mothering Touch resource centre and was a presenter at the 2012 Small Change Expo.
Okay, I've just had a baby and people keep asking me if I have life insurance, a will and RESPs and to be honest, I don't know what they are talking about, because I am just too tired! What are my main financial priorities now I have a family?
Protecting your family! Now that you now have a wee person who relies on you for support, you need to be there (or leave behind a secured financial future). Some priorities for you may be:
Make a will so that your wishes are carried out regarding your children
Ensure your financial well-being is taken care of - insurance, retirement savings, emergency fund
Set up RESPs and other plans to put junior on a path to financial success
People tell me having kids is really expensive, but what should I be expecting in these early years?
It really depends on your lifestyle! For double-income couples, you'll eat out less, probably go on fewer skiing/surf trips and think twice about splurging on that adorable pair of kitten heels that don't match anything in your closet. However, if you've been living frugally and saving, your expenses will increase but your good budgeting should be able to adapt if you're already living within your means (but not at the borderline).
The hardest part for two-income families is to survive the loss of income during parental leave. Check with your employer's HR person to determine how much each parent is entitled to when taking time off. Crunch the numbers to determine how long each parent can take and then practice living on that reduced income as long as you can (ideally 6 months). The difference in income you receive pre-baby and will expect post-baby should be automatically deposited to your savings account. For basic information on EI benefits, read Service Canada's website.
Your monthly costs will include diapers, infant formula for those unable to breastfeed and Daycare (which really run the gamut of pricing in the city - check out Child Care Victoria).
For Baby's Future: The banks and other parents may chant this mantra: RESPs RESPs RESPs! Know that it's ok if you don't contribute right away as you have a chance to catch up on the Government grants and your financial stability is your first priority. People love to gift baby presents - ask for gift certificates, cash (if you can) or contributions to an RESP to help free up your cash flow.
Where can I go for advice on setting up a will?
Most first wills are pretty basic (if it's your first marriage and you don't have a boat docked in the Bahamas). Online forums will give you some ideas on what to expect during the process and a will kit can give you an idea of the types of things you'll need to think about (executor of your estate, property, guardian and trustee of your children). Because not having a will is a potential nightmare for your parents or whomever is left behind if you and your spouse pass away at the same time, broaching the subject with your parents about help to pay for one could be a good idea.
A will should ideally be set up with a lawyer. The cost for two will be around $1,200 but it's a one-time shot. Any adjustments needed in the future can be made with a codicil.
A will kit will is legal but may not cover everything it should as it won't be customized to your situation. Do your loved ones a favour and have a proper document in place. If you die intestate (without a will), someone will need to be appointed by the court to deal with your estate (assets like bank account, car, house, etc.). Now that you have (/will have) dependents, your crucial consideration is your children - without a will, the court will make decisions on your behalf. For the same cost as one-year of car insurance, both parents can have a document that can stay in force for life.
Where should I go for advice on insurance? Do I need life insurance?
An independent licensed insurance broker is the best person to get insurance advice from. Some insurance company brokers are actually able to sell you products from other companies - be sure to ask them for the comparisons. For cost comparisons - you can do some research online from sites like Kanetix. However, without talking to a professional, it will be hard to determine how much insurance (if any) you need as well as which type is best. Even if you make the decision on your own, a licensed broker is obligated to go through the insurance needs analysis with you before he/she can complete an application.
Life insurance has a number of uses:
Provide financially for those who rely on your income (ex. if you are the breadwinner)
Provide for care in your absence (ex. if you are the primary caregiver)
Provide cash for final expenses (without needing to liquidate savings, bank accounts, other assets)
Save insurability (ex. for young adults and children's policies as health and insurance application requirements are unknown in the future)
Tax shelter investments
There are different types of life insurance: Term and Permanent (whole life, universal life). Generally speaking, most people like having permanent insurance (as of right now, there is a 100% chance of dying at some point). The amount of coverage you get is determined by price and the value you put on having coverage now and later. If cash-flow allows, many couples have a base amount of permanent insurance (sometimes they already have life insurance their parents got them as a child) with a larger amount as term life insurance.
Should I set up an RESP? Where should I do this?
If you have the cash, sure! This is a great place for grandparents to contribute. There's no rush to set up an RESP if you have a tight budget (especially if you're planning for another baby and parental leave). You can set up an RESP as late as age 8 and still receive all the government grants.
You can set up an RESP just about anywhere - at your bank, with your financial advisor, or specialty RESP education provider. Each RESP plan is governed by the government but will be modified according to the rules of the plan provider. Make sure you understand the restrictions of any plan you open - for example, does your child forfeit the interest earned if he/she doesn't attend a post-secondary institution? Here are some questions to ask the provider. The money you contribute is always yours, so no matter what, you get it back (and can then choose to use it to help pay for your child's education).
Money is tight now that we pay for daycare, I am on EI etc etc, what are your top money saving tips?
Live on one income as much as possible before baby comes. It's hard these days to be a one-income family but those who are able to do it have better security - if something happens to one income, there's a better chance of the other parent being able to step in and go back to work (if only one-income) or switch to paying the bills/stop saving as much (if two-incomes but living on one). Some moms have amazing ideas for saving money; some like couponing, some just cut back. If you can, go through every expense you have (rent, cable, credit card repayment, etc.) and see if you can lower it. This mean calling each bill company and asking for a reduction because you've been a good customer or you want the latest special (it really truly can work).
And while we're at it, any top tips for budgeting in our day to day life?!
Live within your means! It's oversaid but underdone. With the amount of credit available to Canadians these days thanks to low interest rates, we're in over our heads. The high house prices and lagging incomes have created a double-income-high-mortgage-high-consumer-debt situation for the majority of "middle-class" Canadians. The only way to get ahead, is to not fall behind. It may feel overwhelming to take a hard look at your finances but Canadians with a financial plan fare better overall.
Where can I find you to get some personal advice on my student debt repayment and future financial planning?
Apple a Day financial's blog has some resources. Other online resources that I recommend are the Smart Cookies and Gail Vaz-Oxlade (from "'Til Debt do Us Part" TV show).
For stictly debt management, a fee-only planner would be most appropriate as insurance or investment-focused advisors are commission-based and therefore help with the future planning aspect. As fee-only planners are not a dime a dozen, the majority focus on retirement plans (that cost upwards of $1,000). Depending on your situation, getting to a solid footing may be a solo venture (with the help of online resources and free workshops) or, if you need immediate help, a credit counsellor.
In terms of student debt repayment, don't forget that there are loan forgiveness programs and other ways to reduce payments. A consolidation loan may be considered if the largest loan is at a high balance and interest rate and a consolidation loan will be a lower rate and payment (meaning if you continued paying the same payment, the loan will be paid off faster). A psychologically more rewarding way is to pay off debt in chunks. As someone who paid off $25,000 of student loans in less than 10 years, I know how satisfying it was to pay off loan #1 in 2004 and finishing with loan #5 in 2011. It would have been a longer drag of continuous payments (9 years) which would have felt never-ending in periods of low income. Saying goodbye to a creditor one at a time is satisfying and motivating.
When you are in a position to do financial planning for your future, there are many advisors to help you.