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Financial Planning for Parents – a little advice from NerdWallet

I got the opportunity to ask NerdWallet’s Canadian financial expert, Nora Dunn, a few questions about tips on how Canadian families can prepare Canadian for the new year.

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How can parents start investing with not much money?

While investing for the future is an easy thing to procrastinate on (especially with never-ending family household expenses), time is the most powerful tool you have when it comes to investing. Compound growth is not to be underestimated and starting off investing even small amounts of money each month can reap big rewards later on in life. 

For example, if you start at 25 years old saving $100/month into a TFSA (which grows tax-free), in 30 years at age 55 you will have invested $36,000 of your own money and it will be worth almost $141,000. (This assumes an average annual rate of return of 8%/year). 

If you wait until you are 35 years old to start investing, you will have to invest $250/month (a total of $59,000 of your own money) to reach the same $141,000 at age 55. Waiting those 10 years almost doubles the amount of money you need to save! 

So. How can parents start investing with not much money? Start small, and most importantly, start now. Create an automatic savings plan that deducts a small amount of money from your bank account each month towards your investment goal. When we pay ourselves first in this way, we tend to make do with what’s leftover, and by creating this “set it and forget it” investment strategy, we can tend to our families and careers while knowing our financial future is in hand. 

When should I start saving for my child’s education?

If you’re asking when you should start saving for your child’s education, the answer will invariably be NOW! Following the principles of compound growth, the earlier you start saving and investing, the less money you will need to save overall and the more it will be worth when the time comes. 

Will the government give money toward college tuition?

There are a couple of government programs available to help with saving for your children’s post-secondary education. The key to unlocking these incentives is to have an RESP, and the earlier you open it and start saving, the more money you can receive from the government.

The basic Canada Education Savings Grant (CESG) is available to all families regardless of income, and the government will match 20% of annual contributions made to eligible RESPs. An additional CESG amount will also be given depending on the income of the primary caregiver. 

The Canada Learning Bond (CLB) provides assistance to low-income families with a contribution that is made to a child’s RESP, regardless of whether the parent makes a contribution. The contribution amount depends on the income-based eligibility and can be up to a total of $2,000. 

In both cases, the financial institution you open your RESP with can help with the applications for these programs. 

When should I teach my family about budgeting?

There is no time like the present! The sooner parents loop their children into the family financial situation and speak openly and constructively about money, the more educated and empowered the children will grow to be so they can make the best decisions for their own financial futures. 

You can start kids on the road to creating and managing their own budgets with a Kids Bank Account.

How much money should I save for a rainy day?

While it’s nice to have money saved for a rainy day, it’s better to have specific financial goals and a plan to achieve them. And if you like, one of those goals can be a “rainy day fund” that you can plan to use under certain circumstances (like getting those jeans you saw on sale, or buying tickets for the family to see a show that just opened). 

Your rainy day fund is a part of your overall asset allocation plan, and the amount of money you should save for a rainy day depends on the bigger picture of your financial plan. Asset allocation is a crucial goal-oriented approach to money management and investing, so the first step is to articulate your various financial goals; some examples might include: 

  • Saving for the down payment for a home
  • Emergency fund
  • Retirement savings
  • Children’s education
  • Paying off student loans and other debts
  • Rainy day fund

Once you have determined your financial goals, take stock of your income and expenses by creating a budget, and then allocate money towards each of these goals. Create automatic savings plans so you don’t have to think about it, and before you know it, your rainy-day fund will have enough money to make that rainy day a little more enjoyable. 

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