Parental leave is wonderful. You get quality time with your new baby, you have time to adjust to your expanded family and you don’t have to go to work after sleepless nights. Whether you’re leave is fully or partially paid, it’s important to be financially prepared, especially if this is your second or third child making your family expenses higher. Take these steps BEFORE baby comes to make your time off less stressful.
Pay Off Your Debt
Most of us are skilled at justifying our purchases, whether we need a vacation or a new computer. But although we might be having more fun than our parents did, we’re also deeper in debt.
Laura Hanson found out she was pregnant in late 2011, right after she and her husband finished university. They’d built up a lot of credit card debt, but with some careful planning, they were able to pay most of it off. “We reviewed our finances and started paying off bills. We were able to live off one of our incomes, and we used the other to pay down debt.”
After you’ve paid off what you can, start setting money aside. If you’re relying on Employment Insurance (EI) only (your employer doesn’t “top up”) you’ll receive 55 percent of your income at most. You could be waiting up to six weeks before you receive payment—that could be a long six weeks. Brian Himmelman, an independent financial planner in Halifax, recommends getting a handle on your situation by creating a budget. “Look at your expenses. Rent/mortgage, groceries, utilities… anything that’s not discretionary. If your job is rock solid, you may only need to save up three months’ worth. If your job isn’t as secure, you’ll want to aim for six.” In 2011, the federal government began allowing self-employed Canadians to access EI maternity and parental leave benefits (Quebeckers have the Quebec Parental Insurance Plan). If you’re self-employed, Brian recommends saving twice as much.
Before filing your EI application, make sure that you and your employer have your collective ducks in a row. According to Service Canada, “incomplete applications or an incorrect indication that the claimant will be submitting additional Records of Employment, when they won’t be, are common reasons for delay.”
And do your homework. “Don’t just listen to word of mouth,” Brian stresses. “EI varies from province to province. Look it up and be sure, so that you know exactly what you’ll have coming in.” For details, visit servicecanada.gc.ca.
Prepare For The Unexpected
Even though you’re on leave, life goes on. Your partner (aka the breadwinner) might get sick or your roof could start leaking. “Imagine you’re on maternity leave and on top of that, your furnace goes or you need vehicle repairs,” Brian says. “It’s a stressful time, so emergency savings are even more important.”
Laura experienced this first-hand when she wasn’t able to breastfeed as planned, due to childbirth complications. As a result, she had to buy formula, which took a big chunk out of her parental leave cheque.
Have a Back-Up Plan
Sometimes you just can’t save what you need. In that case, Brian suggests considering an RRSP withdrawal, especially if you’re going to be in a lower tax bracket for the year. That way, you won’t feel the same income tax hit you would at a higher salary.
He also recommends checking with family to see if they can offer emergency support. He never recommends making this your plan A, but it could be an option if you’re stuck. “You may have a parent with a line of credit you can borrow from,” he says. “I never encourage it, but as a planner, I like to know it’s there. And that’s all planning is. Looking for contingencies. What if, what if, what if.”
When you’re off on leave with your adorable new addition, it can be easy to get carried away. “Even frugal people tend to spend more when it comes to their kids,” says Brian. But there are lots of ways to cut costs during those first few months.
Play At Home
Organize a group of new parents and tale turns hosting get-togethers.
Go to the Library
When you need to get out of the house, be sure to check out the array of free proframs, whether you choose storytime at the library or a playgroup at the community centre.
Do It Yourself
Infant massage and baby yoga are great, but they don’t need to be expensive. Check out some YouTube videos, grab a few friends and hold your own sessions.
No matter what you need, look around for the best combination of price and quality. Don’t forget, there are plenty of deals to be found online.
Originally published in ParentsCanada magazine, May 2014.