For many women, returning to work doesn’t come with the same high in their bank accounts before their little ones came along. In fact, the Royal Bank of Canada estimates women are paid less for up to five years after giving birth, and a study from L’Université du Québec à Montréal says it takes moms up to 12 years to catch up to the salaries of women who do not have children (although in Quebec it takes four years, thanks to the province’s subsidized child care program).
In spite of these numbers, women are busy at work. According The Vanier Institute of the Family, 70% of Canadian women with children aged 5 and under were employed in 2015 versus 32% in 1976.
“It’s hard to live on one income, especially in big cities. Most women on maternity leave are well into their career and it’s a significant drop in income when they decide to stay at home,” explains Allison Venditti, a career coach and return-to-work expert who specializes in helping moms get back into the workforce through her consulting service and Facebook group Careerlove. “It can also be hard for women [who take a career break] knowing how much potential income they are missing every month.”
“People who have young children often don’t have very much money,” adds Julia Chung, a partner and senior financial planner at Spring Financial Planning. She even admits going into the debt when she was a young mother—although she did so strategically and mindfully. “I saved nothing during that period,” she says. “I did take time to plan how much money I was going to make over the years so I could deal with the debt. I had a plan to pay it back.”
With her professional know-how and her own experience from when she was a boot-strapped parent, Chung is giving welcome advice to two moms aspiring to get into a financial groove (their names have been changed to protect their privacy). Her universal truth for every mom who feels stressed about their financial health: Don’t expect to live and save like you did before having kids. “Everything changes when you have children. It’s natural your finances will change too,” the pro says.
“As opposed to looking backwards [to your life before having children], look at your current fixed expenses and what you have left over every month and then prioritize what’s most important for that money,” Chung advises. “And be realistic. If it’s the occasional latte that keeps you sane, then set money aside for it.”
“I want to catch-up on my savings”
Who: Isabella, a married mom with a preschooler.
Her story: “I never planned to stay at home but something changed after she was born,” she says. “It was the best thing for our family. We figured out how to make do with one salary to avoid daycare costs and the blur of commuting and worrying about pick-up and drop-off.” She also built a side hustle selling antique goodies which she cultivated while she was a full-time mom. “It was something I could do with my daughter; I would bring her to estate and thrift sales with me,” she explains. Before getting married and starting a family, she had a healthy income which allowed her to purchase a home on her own in Toronto and she and her husband have $223,000 in their RRSP which is steadily growing in a portfolio managed by an investment advisor.
Her work status: After almost four years of being a stay-at-home mom, she’s fresh into a full-time office gig in sales which she found within a couple months of her job search. “It’s the perfect stepping stone for me back into corporate life. They offer a flexible work environment where getting work done—instead of where you get it done—is more important,” she says. No longer a senior manager, she makes less than she did before having a baby, however she’s won flexibility and time with her family.
Her money matters: To help cover the $340,000 mortgage of her marital home, she purchased a house with a rental suite and she says without this extra income, her family would feel financially stressed out. With her new salary, 15% of their household income is available for savings. They would like to contribute to their RRSP, which has been on the back burner since their daughter was born. Adding to an RESP and a vacation fund are also on their hit list.
The expert says: “Catching up is not realistic [for her] right now. It’s usually during the first seven years of a child’s life that things can go financially sideways,” says Chung. For example, Isabella’s unplanned career break meant burning through their cash savings which has left nothing for emergencies. However, now that she has extra cash flow, building an emergency fund which covers three to six months of the family’s expenses should come first. This money will also help when their rental unit is vacant because they will have the cash handy to pay the mortgage. Chung adds if Isabella’s salary is more than $70,000 then she can start contributing to an RRSP to benefit from a tax deduction, otherwise a TFSA is an equally good decision.
Extra advice: “If you have to choose between contributing to an RRSP and an RESP, choose your retirement and remember your children will have access to student loans if and when they need them.” In other words, ditch the guilt and think of it as putting your oxygen mask on first. Also consider asking grandparents and relatives to chip into their future. “Over the years, keep a record of their contributions so you can show your child how much these people put towards their education,” suggests Chung. “For my son, receiving this gift from his grandparents was amazing. It brought tears to his eyes.”
“We have no extra money to save. How do we maximize our existing savings?”
Who: Janet, a mom to a preschooler who is going back to work sooner than expected.
Her story: “My plan was to restart my career once my son goes to kindergarten but then my husband and I separated and I had to find a job,” she says. After two years away from the work force, Janet was nervous about restarting her career. She needed a position with a manageable commute and embraced her life as a solo parent juggling full custody, daycare hours, doctor’s appointments and school events. With her skills and determination in tow, she scored 2 job offers within 2 weeks that met her wish list.
Her money matters: Her $92,000 salary and child support doesn’t go far in a big city, especially since she’s paying for a household that in the long run was meant to be sustained by two people. Between her mortgage, daycare, car payments, groceries and utilities, there’s nothing left over to save for the future and her line of credit is her only back-up fund for emergencies. She’s already cut cable, cellular and any feel-good shopping from her monthly budget and currently has no credit card debt. “Christmas is going to be a challenge,” she admits. Her savings include $100,000 in an RRSP (which she saved during her pre-baby career), $2,000 in a TFSA, $2,000 in cash and her young son’s RESP. Her investments are in low-risk portfolios and she wonders if a more aggressive approach is the best next step.
The expert says: “She should focus on the right mix of investments for her tolerance. If her portfolio drops 30% in one season, like it did in 2008, and her $100,000 becomes $70,000, will she lose sleep over it? If so, then she doesn’t need one more thing that keeps her up at night,” says Chung. If this is the case, her low risk portfolio is the right fit for right now. She can reassess her tolerance at a later date when she has more income. And, if a line of credit is all she has for emergency situations, Chung says that’s okay. Once there’s more cash flow, she should follow the pro’s advice for Isabella: Prioritize saving for an emergency fund first, then her RRSP and finally her son’s RESP.
Extra advice: The one investment Janet should make is a consult with a money coach who can help her plan her cash flow and debt repayment. Even though she doesn’t have debt now, she may need to accumulate some to cover the cost of her home. “I suspect the larger expenses of staying in her neighbourhood is causing some financial stress,” says Chung. If this is what’s most valuable to her family, it may require going into the red for a given number of years. She should get comfortable with that debt and develop a strategy to pay it back with a coach who can project her income, cash flow and repayment strategies. “It takes approximately a year to get used to your life as single mom,” adds Chung, who successfully bounced back from the debt she accumulated after her divorce. “And then she can ask again: ‘What’s important to me?’” For example, some single parents decide they no longer want their marital home and selling it changes their financial plan for the future.
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- The best RRSP investments
- Fiscally fit at 40?
- Planning for the (potential) costs of long-term care