When a new baby enters the family, it’s an exciting and memorable time. For the weeks and months after, you can be wrapped up in a whirlwind of diaper changing, feeding, and taking photos.
However, as those months turn to years, your focus may start to shift towards your financial stability, and whether or not you’re going to have enough money for your child’s post-secondary education and your retirement.
Fortunately, by putting plans in place early on, you may be able to manage both a lot easier than you might think.
Follow the 50-30-20 Savings Rule
While reading information about RESP vs. RRSP in Canada, you may have become daunted by the prospect of being able to fund both a retirement plan and a post-secondary earnings plan.
As scary as it sounds, the 50-30-20 savings rule can offer some much-needed confidence that it’s entirely possible. This savings rule encourages you to divide your after-tax monthly income into three categories.
Half of your income, 50%, goes towards necessities like utilities and groceries and anything else you need to survive.
You can spend 30% of your income on your wants, like holidays and treats.
The remaining 20% can go towards savings for any emergencies that arise, your child’s RESP, and your retirement plan.
Set Up a Registered Education Savings Plan for Your Child (RESP)
Even though your child may be able to fund some of their post-secondary education with side jobs while they study, an RESP can allow your family to begin contributing to their future education-related costs early on.
RESPs are easy to apply for online when your child is young and can be eligible for government grants.
The Canada Education Savings Grant (CESG) also matches up to 20% of your RESP contributions up to $500 annually, giving your child up to $7,200 of extra funds over the RESP’s lifetime to pursue their post-secondary education.
As you and other family members contribute over the years, the plan can be earning investment income.
What’s more, RESPs are tax-advantaged, which means any investment gains are not subject to income taxes, as long as they are spent on post-secondary costs.
By the time your child is ready to leave secondary school, they’ll get to enjoy peace of mind that many of their future educational costs are already covered by your responsible saving.
Make It a Family Affair
As your child’s parents or caregivers, you probably care a great deal about their financial future and educational opportunities.
That’s not to say that no one else in your family does, though.
When you apply for an RESP for your child or children, talk to family members about whether they would like to contribute, as well.
Grandparents, in particular, may be thrilled at the idea of being able to help their grandchildren work toward their chosen career paths.
Consider a Retirement Plan
It can be a significant weight off your mind to know that with an RESP, your child doesn’t have to worry about funding their post-secondary education. However, there’s still your future after retirement to consider.
While enacting the 50-30-20 savings rule, you can be putting away funds each month into a Registered
Retirement Savings Plan (RRSP). Any money you put into this plan remains tax-exempt until the time comes to withdraw it.
Not everyone knows just how prepared they will be for their retirement years or even how much money they need to save.
Having a savings plan in place can ensure that you’ve got at least one income stream by the time you say goodbye to your nine-to-five job for good.
Consolidate Your Debt
Debt consolidation is a popular option for many people saving for a mortgage, trying to save money, and organizing their finances.
Rather than being weighed down by multiple high-interest loans, you can often talk to a lender who can offer one large loan to cover all of those smaller ones.
You may even be able to negotiate a more manageable interest rate in the process.
Debt consolidation may be able to set your family up for success.
By saving money through paying less interest, you may have more leftover to contribute to savings plans like your child’s RESP for post-secondary education.
Consider Life Insurance
No one ever likes to think that they won’t be around to experience the beautiful moments in their family’s lives. The reality is, we can’t foresee the future.
If you want to make sure that your family is well cared for when you’re not around, life insurance may be worth considering.
The insurance sum you sign up for can depend on many factors, such as your debt level, how much you’d need to replace your income, and your budget.
You may even like to incorporate the sum of money your child would have received if you were around to contribute to their RESP.
As painful as it can be to think about your family’s life without you, having a life insurance policy can undoubtedly offer much peace of mind.
Encourage Post-Secondary Education
After setting up an RESP for your child when they were young, it makes sense to encourage them to use it.
After all, the money is sitting there building up until they are ready to put it towards their educational costs.
Not every child will be interested in going to college. Fortunately, an RESP doesn’t have to go towards a college education.
Instead, an RESP beneficiary can put the money towards any post-secondary education, including training programs.
As soon as they sign up for a post-secondary education program, they can start receiving Education Assistance Payments (EAPs) to pay for their course content and related expenses.
However, even after encouraging your child to further their education, they may not always decide to do so. In that case, you may be able to withdraw your funds early, minus government contributions, tax, and a penalty fee.
Everyone wants their family to be safe, well, and financially ready to tackle the world. There’s every reason to believe they can be if you start planning early on. Lay a solid financial foundation with an RESP for your children, a retirement plan for yourself, and a few smart financial decisions along the way.