Our Financial Path.

Start Saving, Investing and Reach Financial Freedom.

We are Taking a Mini-Retirement

We are glad to announce to the world that we are having a little girl in a few months!!! We are so happy to welcome a little one on our journey and cannot wait to share this amazing world with our little girl.

Raising a child is not an easy feat and it comes with a lot of unknowns. One thing we know, however, is that we want to be present for our child and enjoy every moment we can with her. For me, the choice was obvious; I much prefer raising her than chasing after the next raise at work. Fortunately, we live in a great country which values parents and parental leave.

In the United States, the Family and Medical Leave Act of 1993 requires employers to grant 12 weeks of unpaid leave annually for mothers of newborn or newly adopted children. This is one of the lowest levels of leave in the industrialized world. Where we are from, our government program offers a paid maternity leave and paid parental leave which can be shared among either parent. Mothers can receive 70% of their salary up to maximum $975 per week for 18 weeks. Fathers can choose to take 5 weeks of leave at 70% up to maximum $975 per week. Then parents can choose to allocate the remaining weeks between each other. Parents can take 32 weeks of leave with 7 weeks at 70% up to maximum $975 per week and 25 weeks at 55% up to maximum $767 per week.

 

Mother

Maternity (70 % of salary)

18 weeks

Father

Paternity (70 % of salary)

5 weeks

Shared

Parental (70 % of salary)

7 weeks

Parental (55 % of salary)

25 weeks

Total

 

55 weeks

 

In our case, we much rather have more time with our child so we will take full advantage of these benefits. Thankfully, the lower pay is not a concern for us given our current financial situation.

In addition to the government program, my job also provides full salary for the first 6 weeks and all benefits remain for the full length of the parental leave. We plan to take 9 months of leave together, sharing the paid leave as efficiently as possible. One of us will still need to extend a bit with some unpaid parental leave but we budgeted for that. We will take the time to raise our child, play with her, and explore the world with her.

 

Enough to afford a mini-retirement

We are so grateful to have enough of a cushion in the bank to sustain our lifestyle throughout the year. Having a healthy savings account is reassuring; we know that whatever happens, our family will be OK.

Even with a much lower Gross salary, our Net family income will not change that much. For example, Mr. Xyz currently has a marginal tax rate of 37%. However, on parental leave, his marginal tax rate drops to 28%. This difference makes a huge difference on net earnings.

 

Gross

Net

Full-time occupation salary (37% tax)

$100

$63

On leave, enjoying life, earnings (28% tax)

$70

$50.40

Percentage of full-time salary

70%

80%

 

 

As shown above, the actual difference in earnings is only 20% even if the paycheck drops by a third. This gap is easily manageable, either by cutting our expenses, increasing our side incomes or by using our savings to cover the difference.

 

Diversify your Income Sources - Learn how to earn more. #Passive Income #Money

 

We have multiple income sources which will help us fill this income gap. Our total income is composed of affiliate and ad revenues from this blog, ad revenues from our smartphone apps, our full-time occupation which will drop by 20% soon, and investment income such as dividends and capital gains which are currently being reinvested. We plan to spend a few hours per week maintaining and growing our side incomes and believe we can eliminate the gap or a large part of it at least.

 

Where can we do better?

In addition, there are a few holes in our current budget we could fill. We are already doing a great job so far but we could cut our budget by 20% without feeling it too much.

 

Compare your spending

 

The above chart shows this year’s spending (2017 in green) versus last year’s spending (2016 in yellow). Some categories were not even included due to the negligible amounts but we will go over the main ones. Surprisingly, most of these numbers are right in line with our mid-year spending report previously published.

Our biggest expense is our housing, it was slightly higher last year due to some small renovations but our fixed costs (mortgages, property taxes, maintenance) did not change. In the next two pillars of our budget, Transport, and Food, we stayed pretty constant, increasing our spending only 5% and 7% respectively. Going forward, we think these core expenses will stay constant. However, it is highly probable that our restaurant spending drops with a baby due to the lack of time and date nights.

We did cut down our expenses in the Bills & Utilities category. Compared to last year, we saved hundreds of dollars, mainly on our electricity bill and cell phone bill. Going forward, we plan to cut this even more by switching to cheaper cell phone providers and getting base plans.

Our Shopping spending stayed constant around $3,000 with only a 3% decrease year-to-year. However, where we really saw a difference is in our Travel expenses. Since we discovered travel hacking, our travel costs have dropped from $9,582 to a jaw-dropping $1,588. This is over 600% drop in spending without cutting on any traveling! We visited as many countries, if not more, but did not have to pay for any plane tickets and barely ever pay for hotels anymore. Going forward, this number will stay low, even if we have big trips planned for 2018, simply because of credit card rewards.

 

2016 2017
Travel $9,582 $1,588

 

Finally, a category that does not even show up in our main spending this year is Health and Fitness. We spent $1,576 last year, mainly on ski outings, and only $115 this past year. This is due to the fact that we did not buy ski passes this year since Mrs. is pregnant. Going forward, we plan to increase this expense and ski with Baby Xyz.

 

We cut our sports budget

 

New expenses to come

Of course, a newborn will come with a lot of new expenses for this following year. We will need a crib, stroller, car seat, baby bag, clothes, but most of these have been offered by our family. Most of the initial costs will be covered but we have set aside $500 for anything we need to buy ourselves. In terms of the birth, some parents in the United States can expect to pay on average $10,000 for the delivery and over $15,000 for a Caesarean delivery, according to the International Federation of Health Plans (IFHP). In Canada, however, our total bill for the prenatal checkups, prenatal classes, delivery, and postnatal follow-up will be a total of $0 due to our tax-paid healthcare system.

Once our little girl is born, we plan on using a mix of disposable and cloth diapers. This should average about $50 per month. Wipes and other pharmacy purchases might add up to about $20 a month and Mrs. Xyz also plans to breastfeed so we will not have any formula to buy.

Most of her clothes, throughout her youth, will be hand-me-downs or from the thrift shop so the clothing budget will be negligible.

 

Kids budget for newborns

 

Toys will likely be the same thing, we are not budgeting for any toys or entertainment for the first few years. Kids don’t need much to be happy, as long as you are with them and give them all your love and attention.

We will not have any childcare costs for the first year since we will both stay at home but we are planning to send her to daycare after her first birthday. The best scenario would be to generate enough passive income to have one stay-at-home parent but realistically, we will be returning to work in a year. Daycare cost about $900 per month in our region but, after tax-credits, this comes out to roughly $150 per month.

In terms of insurance, my work provides everything we need for her from life insurance to dental coverage.

We already have a large SUV and large house so we do not need to upgrade anytime soon. Honestly, kids only cost what you spend on them. High spenders might buy every new toy and upgrade their cars for the good of their kids but they do not need all that.

Finally, we plan on putting aside some money for her in a Registered Education Savings Plan (RESP) similar to a 529 in the U.S. This program is great to put money aside for your child education. Although higher education costs are drastically lower than in America, this account can cover living costs such as room and board, and books, in addition to our low tuition costs. The government will match 20% of our contribution up to $500 per year, per child so we plan on investing $2,500 per year in this account. Assuming a 7% net return in the market, this $3,000 per year would grow to a total of $119,277 after 18 years. With these returns, our daughter might even afford to study in America.

 

RESP returnsSouce: Bankrate

 

In Canada, the child benefit program also offers up to a maximum of $6,400 per child under six and $5,400 per child aged six through 17 to help to parents. According to our income, we will be eligible to receive $3,630 tax-free per child, per year. This will help us cover all costs listed above and will be of great help once she gets older and costs add up.

 

Trips to come

Since we are getting some time off work, it seemed like the perfect time to plan a few trips! We will keep you guys updated when we book the whole thing but we are planning a mini around the world trip to Switzerland, Germany, Italy, Thailand, and Canada. We are also planning trips to the U.S. and maybe Mexico. Of course, all of this will cost almost nothing with rewards points.

So what are your plans for the year? Comment along.

Mrs. and Mr. Xyz.

 

 

14 Comments



  1. Congratulations on the upcoming birth of Baby Xyz! The first year of her life sounds amazing for you.

    The fact that losing 20% of your net salary is “easily manageable” made me chuckle. Because where else but in this FI community could someone say that and pull it off. You know exactly how you spend your money and what you can cut. It’s great that you control your money and it doesn’t control you.

    • Xyz

      December 11, 2017 at 9:13 am

      you control your money and it doesn’t control you.

      That is very well said Mrs. Groovy, thanks for the encouragements.

  2. Congratulations on Baby XYZ!! What an exciting time and so great that you both get to take a mini retirement to be with your daughter. With the government leave benefits and other sources of income, it doesn’t even seem like it will be too much of a financial hit! Leave in the US is abysmal and while I was lucky to have 16 weeks paid leave with my first, it was incredibly difficult to go back to work when he was still so small.

    • Xyz

      December 11, 2017 at 9:36 am

      I completely understand, we have it pretty good here and we are grateful to be able to afford to take so much time off.

  3. Congrats on your baby girl! Make sure you sign up for free stuff- I have a post of it on my blog. I got some moisturizing oil that we use for baby massage for free and a free baby box before delivery.

    I am in my mini-retirement (mat leave) about 4.5 months in and it’s fantastic! The round the world trip would be a dream! So far we are in Hawaii for 5 weeks and that’s all we could do. It’s very different traveling with a baby- don’t plan on the RTW trip in the first 3 months- you’ll be too exhausted to travel!!

    Also if you can get a 1 bedroom when traveling that helps too. It’s hard to do anything if it’s dark after 8pm lol 🙂

    • Xyz

      December 12, 2017 at 9:28 pm

      These are amazing tips. We were planning to go traveling after about 4 months but we are still working on the dates. Hopefully, our baby will be an easy traveler and sleep a lot 😛

      We definitively need to look into more free stuff! 🙂

  4. Wow moral of the story is if we ever want kids, move to Canada! Y’all are super lucky your country values families. It sounds like you know the rules and will maximize your first year together. You never know, maybe the time off will lead to creative opportunities, and you’ll have enough passive income to make it permanent. 🙂 Best wishes on this new journey!

    • Xyz

      December 12, 2017 at 9:23 pm

      Thank you for the good wishes! You said it perfectly: we know the rules.
      I am always so amazed to see how many benefits are out there and how many people do not enjoy them simply because they do not take the time to learn them.

  5. Congrats on the exciting news!! Best wishes, sounds like the year off will be fantastic for all 3 of you 🙂

  6. Congratulations again Mr & Mrs Xyz!!! So happy for you.

  7. YAY! My only comment on expenses would be to have a slush fund for the unexpected…we planned on breast feeding as well only to find out I don’t make milk. So formula it was! Mostly because I didn’t have access to a reputable milk sharing bank. Not the end of the world, but did make for more expenses.
    My other comment on saving money would be to start potty training much earlier than others. My son was day time potty trained before he was a year old which saved so much in diapers. Night time was more challenging since I like to sleep and he wouldn’t wake up to go on his own…but we accomplished that as well in a timely fashion.
    Have the best mini-retirement ever!

    • Xyz

      December 26, 2017 at 8:08 pm

      Thank you so much, Lindy, we are hoping to breastfeed, of course, but you are right, unexpected expenses can show up.

Leave a Reply

Your email address will not be published.

*

© 2018 Our Financial Path.

Theme by Anders NorenUp ↑