We’re Having a Baby!
One of the issues I run into often when dealing with my fams is the arrival of a new babe and the income loss associated with taking maternity leave. In Canada, new moms can take up to 52 weeks off from their jobs and have those jobs protected for their return to work. However, all that time off doesn’t necessarily come with a full paycheque. Yes, there are companies that offer a “top up”, but it hardly ever is for the full amount of your before-baby pay, and it seldom lasts for the full year.
For people who do not receive a top-up, employment insurance (EI) benefits will provide an income. EI benefits are calculated as 55% of your normal earnings up to a maximum salary of $40,000. So if you’re earning $40,000 a year, which translates into $3333 before taxes a month, or $769 gross a week, you’ll be entitled to 55% of that or about $423 a week, before taxes. Ouch!
On top of that pain is the fact that the first two weeks of mat leave are unpaid, so your income calculation won’t start until the third week. And since it’ll take between four to six weeks to get your first EI benefit deposited into your bank account, you shouldn’t be counting on that money to make your mortgage payment or buy food.
Moms aren’t the only ones who can take time off with your new Mini-Me. Dads can take up to 35 weeks of parental leave; however EI benefits have to be shared between the mother and father so they can’t both collect EI at the same time.
Adoptive parents also get to take parental benefits and fall under the same rules as dads.
So, now that you know you’ll only be getting a fraction of the income you’ve become used to, how are you going to cope?
Some of my fams have resorted to using their credit cards or lines of credit to see them through. Dumb! With a new long-term expense – that’s the baby - adding gobs of interest to the equation is no way to secure your financial future. I meet them when they’ve fallen further and further behind, becoming almost desperate at the hole they’ve dug themselves. And if another baby arrives soon after, OMG!
First, I’m going to say something that may not be very popular: just because we are guaranteed a year of mat leave doesn’t mean we have the right to take it. We only have that right if we’ve taken the time to plan for it, and have the money we’ll need to make ends meet without going into debt.
The best way I’ve come up with for people to see the implication of the mat leave income drop-off is to have them live on their mat leave income for the duration of the pregnancy. Yup. Live on less, and put the rest away for emergencies, to buy the stuff you’ll need for baby, or to start an education savings plan. If you can’t swing it for the months that you’re preggers, you might want to reconsider taking the full year’s mat leave.
The other thing you have to consider is which member of the family should take the most time with the baby. While, traditionally, women have done this, when the woman is the primary breadwinner in the family – and I’m seeing more and more of this - then the income loss to the family is felt doubly. You really do have to do the math to see who should take time off and how much, and how that will impact on the family’s financial situation.
And, of course, you have to make a budget that balances while you’re off, including a whole bunch of new categories that incorporate baby’s food, clothes, personal care (diapers, shampoo, cream), medical, toys, activities, and savings.
Don’t forget the costs associated with actually getting the baby here: hospital rooms and parking. If you have a health plan through work, you may be covered for semi-private room. If not, you may have to settle for sharing a room with a lot of other crying babies. And don’t bank on being in hospital for only one day. I had to have a c-section TWICE and they want to keep you longer. And if there’s any complication with baby, you’ll be “living” at the hospital until baby can come home. Don’t add financial stress to your already over-stressed life.
The arrival of your newest family member should be a time full of joy and excitement. But you can’t expect things to run smoothly if you’re a dope and don’t do some planning. People like to say they didn’t have any time to plan… that they were “surprised” by baby’s arrival. You’re kidding me, right? Nine (I actually think of it as ten) months isn’t enough time to figure out how you’re going to cope? Or maybe it’s that you don’t want to have to face some hard truths. Well, you have a baby to consider now, so it’s time to wake up and smell the poop!
June 6th, 2008 at 2:21 pm
In addition to what Gail was saying, I believe that children are a gift and parents should be able to meet their children’s needs. I’m not saying you should be rich to have children but there are good and bad times for making this huge life changing event. My husband and I are waiting until we can afford daycare costs etc so that we are able to financially afford having children. I shake my head at people who have huge amounts of debt and then want to bring a child into the situation.
June 6th, 2008 at 6:47 pm
My husband and I planned for our first child, born this April 26th by saving up all the money we would need for the first year. Diapers, toys, cribs etc. We are not the best money managers (but are learning alot through Gail) but I was determined not to make a baby a hardship to our financial situation by doing some careful planning. We lived on less, saved more and made some important decisions during this time. We had some hardships that included my husband losing his job in my 7th month and having to move over 1400km to a new city when I was almost 8 months along but we did it. Unfortunatly we didn’t plan for any problems with our baby. We planned on a healthy, happy baby and a quick trip home with our bundle of joy. That didn’t happen. I went into premature labor, 4 weeks early. He was admitted to the NICU with some breathing problems. 3 days after he was born he was airlifted to the Stollery Children’s Hospital for an emergency surgery to save his life. We had to drive to the hospital from 5 hours away, stay in a hostel, eat out, miss work…none of which we were prepared for. I would estimate that the 3 weeks that he was in the hospital for cost us in the neighbourhood of almost $10,000 when you factor in food, lodging, missed wages, fuel… Thankfully we have wonderful parents who helped us out and our baby fund that we saved that have almost kept our head above the water. We went a little behind in our debt repayment and now don’t have that baby fund to draw from for all his expenses. But we’ve adjusted our plan and even though I am on mat leave (still waiting for that first cheque and it’s been over 8wks!!!) I will be returning to work part time. I can earn around $100 a week without affecting my benefits and that almost $400 a month will help. My husband is taking on extra work too. We are turning a less then ideal situation around.
So Gail is right. Don’t expect it all to go smoothly…sometimes it doesn’t. And no the government doesn’t cover it…you’re on your own! We are home now with our handsome son and he’s on the mend. I thank Gail for her advice I saw on one of her shows…the same as on this post….we followed it and averted a total financial disaster.
June 7th, 2008 at 1:33 am
Don’t count on your job being there when you get off MAT leave either…. I was conveniently downsized about 2 months before my due date, so I had to start my EI claim early….nobody was ready to train and hire a huge hormonal lady! EI held for a total of 6 months (it was different back then), so I was left earlier than expected with a very young baby and no job to go back to. The babe had some health issues and I had depression from the nasty hormones, so job hunting was not at the top of my list of things to do… just waking up and getting dressed were huge for me then.We did manage by living on hubby’s income when the EI ran out. Just barely though, they were hard, lean times. And when things started to settle with baby and depression, THEN I got my act together enough to get a decent job and begin contributing to the bill paying again.
Another note: DON’T FORGET childcare for an infant is really expensive and hard to find…. so try to get your finances in order so you can take the first year off!!!! AND look well in advance! Quality care is generally full, so don’t wait to the week before you get back to work to start interviewing!!!
June 8th, 2008 at 9:53 am
Starting to plan before you are even pregnant is the best idea! I had my baby girl 7 weeks early by emergency c-section and had to be on bed rest 6 weeks before that! I had hoped to work right up to about 2 weeks before I was due. You may never get those 9 months to plan for baby!!!!!!!!!!!!!!!
We will be more prepared for baby number 2 by starting to save before we are pregnant.
June 8th, 2008 at 2:08 pm
And guess what happens when a pregnancy is determined to be multiples??? Absolutely everything planned for is thrown out the window! So even planning for a baby may not be enough. Luckily I had 2 beautiful baby girls 5 years ago and with the cost of daycare, etc. it did not make economic sense to return to the work force. I took the 12 month mat leave, gained energy during the next 6 months and then found work that I could do at home. Surprise surprise!
June 8th, 2008 at 9:10 pm
My tip would be to put extra money away for income tax time! I ended up owing $2000 to the Feds. I expected to owe - but not that much!
June 9th, 2008 at 2:31 pm
Gail, It would be great if you had tips for those of us that are self-employed and don’t get maternity benefits at all. Luckily my husband’s income covers the bills, mortgage and savings, but my income has been groceries, entertainment and gas for the car. I have been downsizing our budget significantly so I have been setting aside about $300/month for after the babe is born, but that money can only last so long. I am assuming that after about 3 or 4 months, I will be creating some new at home jobs (piano teacher? seamstress? child care?) to earn enough money for groceries! Any other tips for surving , since our line of credit is almost paid off, and we really don’t want to use it at all.