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. To enjoy every minute of this amazing adventure, we are taking a mini-retirement for the year.
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 a maximum $975 per week for 18 weeks. Fathers can choose to take 5 weeks of leave at 70% up to a 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 a maximum $975 per week and 25 weeks at 55% up to a 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 a 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 in 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.
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. In addition, we are still earning a portion of our full-time occupation salary and investment income such as dividends 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.
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.
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.
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.
Source: 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.