Preparation for a new baby often starts from the moment we see that first sonogram. Beyond the diapers, bottles and furniture to be purchased, there is one thing new parents should not overlook: the cost of maternity leave. If you're planning to take a year off work and haven't saved any money, it can be financially stressful. To better prepare for this reduced income period, here's an overview:
New moms or dads can take up to 52 weeks off from their jobs but it doesn't come with a full paycheque. If you have worked at least 600 hours and your weekly earnings while on leave will be reduced by more than 40 per cent, you can claim Employment Insurance (EI) which provides a limited source of income during your leave.
EI benefits are calculated as 55 per cent of your normal earnings up to a maximum amount. As of January 1, 2015, the maximum yearly insurable earnings amount is $49,500 which amounts to $524 per week. Some organizations offer a top-up to EI which can help, but it's usually limited to a certain number of weeks.
With this in mind, here are some useful tips to help with the costs of raising a child during the first year:
1. Assess who should stay home: If one partner is the breadwinner, it might make sense to have the other stay home to minimize the impact on the family's finances. While traditionally the mother is often the one who stays home, for some families, it might make more financial sense to have the father stay home.
2. Refine your household budget: If you don't already have a household budget, track where your money goes each month and calculate costs for everything your new baby will need, such as diapers, formula, and more.
3. Calculate your maternity/paternity leave income: Determine if you are eligible for EI, how much you will receive, if your company offers a top-up, plus any other sources of income. Make sure to include the Universal Childcare Benefit which was recently increased and expanded by the federal government to provide a taxable monthly payment of $160 for each child under the age of six and $60 for each child aged 6 through 17.
4. Live on your mat leave income now: Many financial experts suggest expectant parents live a portion of their pregnancy on their mat leave income. By doing this you get acclimatized to your new financial reality while stockpiling the extra funds for when the baby comes.
5. Start saving: If your anticipated expenses are significantly higher than your expected income, you should start saving before the baby arrives. The difference between your expenses and anticipated income is the absolute minimum you should be saving each month to fill the void during your time off.
Don't let the lack of preparation add more stress to an already chaotic life as a new parent. Having a financial plan in place before the new bundle of joy arrives will allow you to focus all your attention on enjoying the precious moments without worry of making ends meet.
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