How to Budget for RESP Contributions
2020 was a pivotal year for us all. Finding out I was pregnant with twins was the biggest shock of my life. To get this news right at the start of lockdowns? That sent me to an astronomical level of uncertainty. And to be honest, with the countless expenses that came with having newborns, the last thing I was thinking about was budgeting for two more RESP accounts
My education surrounding RESPs (Registered Education Savings Plans) at the time was very limited. I had opened one for my firstborn, Hudson, back in 2016 with my big bank at the time. I held the notion that any money put away for my children’s education was a good thing, but never prioritized making regular contributions. Besides, the grandparents would help solve that for us right?
What are RESPs?
At the basic level, they’re long-term savings plans similar to RRSPs (Registered Retirement Savings Plans) in that the cash you stow away can grow and be protected from tax. But instead of retirement, RESPs help people prepare and save for a child’s education after high school. They have the potential to grow significantly (up to a maximum of $50K per child) if you take the time to understand them and reap the benefits of all that you are eligible for.
How do contributions work?
Anyone can set up an RESP for a child as their beneficiary. They’re very flexible in contribution nature so long as you don’t exceed the lifetime maximum, and once a child is ready to attend post-secondary they may access the money.
What can the government offer?
This is the important piece of information that I was missing. In order to maximize RESP potential, you need to understand what the Canadian Education Savings Grant has to offer, and the caveats associated with that. A big one to note is that the federal government will match 20% of any contributions (to a maximum of $500 annually per child) so long as you contribute $2500 per year to each RESP. We have not met these RESP requirements yet, but are ready to get started.
So why am I prioritizing all this now?
Since becoming a member with Coast Capital I’ve become more educated on the importance of RESPs. Coast Capital has been a member-owned financial cooperative for over 80 years and we love how they provide real advice for real life matters. The good news is that if you’re playing catch up like us you still have until the end of the year once a child turns 17 to make contributions. At Coast Capital I’ve felt supported on family matters along with online resources like how to maximize the power of an RESP. There’s some great resources on Coast Capital’s website that I wish I had read prior to having the twins, like an ebook on how to manage money with a baby on the way. I’ve realized how important RESPs are for my children’s future, and why post-secondary education is not something to rely on the grandparents for. It’s very expensive. With all things considered, it can cost upwards of 20k annually, per child.
How do we plan on budgeting for three RESPs?
Keeping projected costs of post-secondary education in mind, it’s time for us to start working RESP contributions into our budget. In order to maximize the free money that’s available from the government (up to $7200 per child) we need to be putting away around $630 per month for our kids. With rising inflation this isn’t an easy adjustment, but it’s an important one for us to start striving for.
One of the biggest takeaways I received from Coast Capital was the concept of proactive vs reactive planning also found in their ebook on how to manage money. We’ve been living in reactive planning for as long as I can remember. We take on the financial burdens of life as they come at us and then adjust accordingly, rather than prepare ahead of time. For something as important and expensive as post-secondary education, we can’t leave it to chance any longer. Besides, we want to watch the compounding interest of our contributions start growing!
The other budgeting concept I learned from Coast Capital is the 50:20:30 rule which allows a simple methodology to keep track of spending. We plan on creating and revisiting a new budget with regular contributions to RESPs worked in.
We’re going to start using Coast’s Money Manager app, where all our accounts across institutions are visible in one place. The Money Manager has built-in budgeting features based on our previous spending that help pay off debt and grow finances
The only way we can wrap our heads around the expense of post secondary is by breaking it down into manageable contributions.
Small increments create big change.
When it comes to budgeting for a baby or growing your family with multiple children, there are many little things we can do.
It really come down to making adjustments on your spending. Reviewing and tweaking necessary lifestyle expenses from unnecessary ones. Things like deleting subscription services that aren’t adding value and taking advantage of any financial savings that become available in our lives. Collectively, it can go a long way.
So, visit Coast Capital’s site today to get financial advice for your real life. For a limited time new members can earn 20% cashback* on household bills. Offer ends November 30, 2023. *Conditions apply. Apply today using this link!
Love,
Momma Mills
