We’re Having a Baby!

One of the life events that will have the biggest impact on your money 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. 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?

Many new moms and dads resort 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. Every month you’ll fall further and further behind, becoming almost desperate at the hole you’ve dug yourself. And if another baby arrives soon after, your goose will be cooked.

Just because Canadians 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 to see the implication of the mat leave income drop-off is to live on the equivalent of your mat leave income for the duration of your pregnancy. Put the rest of the money you’re earning 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 pregnant, 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 then the income loss to the family is felt doubly. Do the math to see who should take time off and how much, and how that will impact on the family’s financial situation.

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. 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!

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