It's Your Money  

Preparing for parental leave

Parental leave tips

Taking a parental leave can be a wonderful experience for new parents, but it can also be a financially challenging time.

In Canada, the government offers some financial support for parents on leave, but it is important to also plan and prepare your finances beforehand to ensure a smooth transition.

Here are some tips on how to financially prepare for a parental leave:

1. Understand the government benefits available to you—The basic rate used to calculate maternity and parental benefits is 55 % of your average insurable earnings, up to a maximum amount ($650 per week in 2023). For extended parental benefits, this rate drops to 33% to a maximum of $390 per week. Eligibility requirements can be found on the government website.

2. Create a budget and stick to it—Creating a budget is an essential step in preparing for a parental leave. This will help you to understand how much money you will need to cover your expenses while on leave. Make sure to include all your monthly expenses, such as rent, utilities, groceries, and transportation. Consider also the additional expenses that come with having a child, like diapers, baby clothes, and childcare. Once you have created a budget, make sure to stick to it as closely as possible.

3. Save as much money as possible before your leave starts—Saving money before your leave starts is crucial in ensuring that you have enough money to cover your expenses while on leave. You should aim to save at least three to six months of living expenses to ensure that you have a cushion in case of any unexpected expenses. You can save money by cutting back on non-essential expenses, such as eating out or subscription services. You can also consider taking on a part-time job before your leave starts to save extra money.

4. Consider alternative sources of income—While the government benefits can help to cover some of your expenses while on leave, they may not be enough to cover all of your expenses. Consider alternative sources of income, such as a part-time job or a side hustle. Many parents choose to start a small business or find online work to supplement their income while on leave.

5. Look into government programs and services for additional support—The government offers various programs and services that can provide additional support for parents on leave. For example, the Child Care Fee Subsidy program can help with the cost of childcare, while the Canada Child Benefit program provides monthly payments to eligible families to help with the cost of raising children.

6. Prepare for changes in your taxes—Taking a parental leave may also affect your taxes. For example, if you are receiving government benefits while on leave, you will need to claim them as income on your taxes. You may also be eligible for certain tax credits, such as the Canada Child Benefit. It is best to speak with a tax professional or use tax software to ensure that you understand how your taxes will be affected while on leave.

Taking a parental leave can be a financially challenging time, but with the right planning and preparation, you can ensure that you have the financial support you need to enjoy your time with your new child.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Finding yourself in debt for the first time

Dealing with debt

If you find yourself in debt for the first time, it can be a stressful and overwhelming experience.

However, there are steps you can take to get back on track and regain control of your finances.

The first step is to assess your situation and understand how you got into debt. This could include identifying any overspending habits, unexpected expenses, or changes in your income. Once you have a clear understanding of the root cause of your debt, you can begin to develop a plan to address it.

One of the most important things to do when dealing with debt is to create a budget. A budget will help you understand where your money is going and where you can make adjustments to free up money to pay off your debt. This can include cutting back on non-essential expenses, finding ways to increase your income, or a combination of both.

It is also important to prioritize your debts. This means paying off high-interest debt first, such as credit card debt, as it is costing you more money in the long run. You can also consider consolidating your debts into one loan to make payments more manageable.

Another important step is to communicate with your creditors. If you are having trouble making payments, they may be able to offer you a payment plan or a reduction in interest rates. It's important to keep in mind that creditors would rather work with you than pursue legal action, but if you don't reach out to them, they will not know what's happening.

You may also want to consider seeking professional advice. This can include talking to a financial planner or a credit counselor. They can help you develop a plan to pay off your debt, as well as offer advice on how to improve your credit score.

Finally, it is important to remember that while getting out of debt takes time and effort, it is possible. It will require discipline, commitment and a willingness to make changes in your spending habits. It's important to stay motivated and remind yourself of the end goal of being debt-free.

It's also important to note that there are some debt relief options available, like debt settlement and bankruptcy, though they both have some negative effects, like damaging your credit score, and it's important to understand the consequences before considering them.

If you find yourself in debt for the first time, it can be a stressful and overwhelming experience - but it is important to remember that you have options.

By assessing your situation, creating a budget, prioritizing your debts, communicating with your creditors, seeking professional advice, and staying motivated, you can regain control of your finances and work towards becoming debt-free.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Start the new year right when it comes to your finances

Financial resolutions

The start of a new year is a perfect time to set financial goals and create a plan to achieve them.

Whether you want to save for a down payment on a house, pay off credit card debt or start investing for retirement, a little planning can go a long way in helping you reach your goals.

Here are a few steps you can take to get your finances in order and start the new year off right:

1. Assess your current financial situation. Take a look at your income, expenses, and debts. Make a list of all of your fixed expenses, such as rent or mortgage payments, car payments, and insurance, as well as your variable expenses, such as groceries and entertainment. Look for areas where you can cut back, such as dining out or subscription services.

2. Set specific, measurable goals. Instead of simply saying you want to save more money, set a specific goal, such as saving $10,000 for a down payment on a house. Be sure to set a deadline for achieving your goal and break it down into smaller, more manageable steps.

3. Create a budget. Once you have a good understanding of your income and expenses, create a budget that will help you reach your financial goals. Be sure to include both fixed and variable expenses, as well as a "miscellaneous" category for unexpected expenses. Make sure your budget is realistic and that you are able to stick to it.

4. Make a plan to pay off debt. If you have credit card debt or other outstanding loans, make a plan to pay them off as quickly as possible. Consider consolidating your debt into one low-interest loan or transferring your balance to a credit card with a lower interest rate. Be sure to pay down the debt with the highest interest rates first.

5. Start saving for retirement. Even if you're not yet ready to retire, it's never too early to start saving for your golden years. Consider opening an RRSP account and make regular contributions. But be sure to take advantage of any employer matching contributions first.

6. Review your insurance coverage. Make sure you have the right insurance coverage for your needs. Review your health, homeowners, and auto insurance policies to make sure you have enough coverage and that you're not paying for unnecessary coverage.

7. Seek professional advice. If you're not sure where to start or need help creating a financial plan, consider seeking professional advice from a certified financial planner. He or she can help you create a plan tailored to your specific needs and guide you through the process of achieving your financial goals.

Starting the new year off right with financial planning can help you achieve your financial goals and give you peace of mind. You can take control of your finances and set yourself up for financial success in the coming year.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Five myths about retirement

Preparing for retirement

Getting your retirement plan right is crucial. You need to be confident your money will last throughout your retirement, while giving you the standard of living you need.
There have been a number of myths about retirement planning circulating for years that can have a negative impact on your retirement plans.

Let’s take a look at some of the more common ones and the reality that lies behind them:

The cost of living will be lower in retirement

A very common retirement myth among Canadians is that their income needs will be much lower once they stop working. After all, they won’t have those commuting costs or need to make mortgage payments. But is this realistic?

You may actually need more instead of less if you plan on an active retirement involving travel. There are also other factors at play that can make retirement more expensive than you might have expected.

For starters, plenty of Canadians have debt in retirement (14 per cent still have a mortgage and 42 per cent have some kind of debt). Managing debt in retirement will have an impact on your disposable income.

Many retired (or soon-to-be retired) Canadians are still supporting their adult children financially as well, for example with their education costs or to help them make a down payment on a new home.

Higher life expectancy also brings challenges. The longer we live, the more likely we are to have health issues.

You could also have considerable costs to pay for in-home care, a care home or renovations to make your home more accessible if you develop mobility issues. All of these will add to your cost of living in retirement.

RRSPs are a complete retirement plan

This is a potentially harmful retirement myth, given that many people will need more than their RRSP income to bring them a comfortable retirement. While RRSPs undoubtedly provide a very tax-efficient way of investing for retirement, they are only one piece of the puzzle. A comprehensive retirement plan will also take into account numerous income sources, such as:

• Canada Pension Plan (CPP)

• Old Age Security (OAS)

• Company pensions

• Tax-Free Savings Accounts (TFSAs)

• Dividends and other income from non-registered investments

• Rental income from investment properties

Most Canadians will rely on several of these income sources, not only to give them a comfortable retirement but also to provide the kind of flexibility that will allow their retirement income to be as tax efficient as possible.

Also, an investment plan is not a retirement plan. RRSPs are one part of an investment plan, but a real retirement plan also includes estate planning, life insurance and tax efficiencies.

One million dollars is enough for retirement

This has been a long-running myth about retirement, with that magic million-dollar figure a common target to ensure a secure retirement. However, the amount that any investor will need when they retire will depend on a whole array of variables, with the target amount being unique to each person.

If you withdraw four per cent of that million per year in retirement (a commonly used percentage to ensure you don’t run out of money) you’ll have $40,000 annually. When you combine this with other retirement income, as detailed above, this figure could be too much or too little for some people.

Here are some of the key issues you need to consider when working out how much you’ll need to save for your retirement:

• When do you intend to retire? An income of $40,000 may be enough if you retired today, but how much would that buy if you retire in 2047 or 2062?

• Do you expect to inherit money? A large inheritance could considerably reduce the amount you need to save for retirement.

• What kind of retirement do you want? If you intend to be very active and travel a lot, you’ll need more savings than someone who wants to stay home and spend more time with the grandkids.

• What other retirement income can you rely on? CPP and OAS? Company pension? If you have little in other retirement income, you may need to save more.

• When do you plan on retiring? Early retirement typically requires more in savings. Conversely, the later you wait to draw CPP and OAS, the more they’ll be worth to you.

• How much will you owe in retirement? Will you be debt-free or will you be carrying a mortgage or other long-term debts? The more you owe, the more savings you’ll need.

As you can see, knowing how much you’ll need for a comfortable retirement is complex. To get a more precise figure than $1 million, you should consider working with a financial planner and setting up a comprehensive plan.

Retirement plan portfolios should be conservative

This retirement myth may have had some truth to it several decades ago, when people had much shorter retirements. Now, Canadians could realistically expect their retirement to last 25 years or longer. Retirement portfolios that need to support you for this many years aren’t going to experience significant growth if they’re made up exclusively of fixed income. A conservative retirement portfolio runs the risk of running out of money.

Never carry debt into retirement

While this might seem like common sense (with no debts, you’d need less retirement income), this is another one of those myths about retirement because it’s not realistic or practical. As we’ve seen, close to half of retired Canadians carry some sort of debt.

It’s important to differentiate between good and bad debt. You certainly don’t want to be carrying tens of thousands of dollars’ worth of high-interest credit card debt when you’re retired. Payments and high interest will eat away at your income.

A home equity line of credit (HELOC), on the other hand, can be a useful financial tool in retirement. It typically has lower interest than other forms of loans (apart from mortgages) and is extremely flexible. You can pay it off over a long period of time, and payments can be as little as the interest accrued that month. HELOCs can be really useful for paying for big-ticket items, such as home renovations or foreign travel.

Financial planning should ignore myths about retirement – A Certified Financial Planner (CFP) profession understands the complexities of retirement planning and has heard all of the retirement myths. They can work out exactly how much you’ll need to save (and know it probably won’t be $1 million) and the kind of portfolio you need at your stage in life to get there.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

More It's Your Money articles

About the Author

Brett has worked in the financial advice industry for over 15 years and is designated as a chartered investment manager(CIM) and certified financial planner (CFP).

In 2014, Brett was appointed to the board of directors of FP Canada (the national professional body for financial planning) and spent seven years on the board, including his final two as board chair. More recently, he was appointed to the Financial Planning Standards Board (FPSB), which is the international professional body for this industry with a three-year term beginning in April 2023.

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy-to-understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the national and global boards focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns or if you’d like a referral to a qualified CFP professional in your area by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories