As much as I’m looking forward to taking a few months off work when our third child is born soon, we are going to miss my full-time salary. The prospect of life without my paycheque makes me nervous, although we have been preparing for it. We reduced our discretionary spending over the past eight months in anticipation of my maternity leave. We cut back on restaurant meals, planned a thrifty summer holiday near home, and curtailed our clothing and entertainment budget.
Many Canadian families experience a significant loss of income with the arrival of a child. Most new mothers, about 85 per cent, are employed before giving birth, according to a Statistics Canada report earlier this year, making them eligible for a combination of maternity and parental benefits up to 50 weeks.
However, in all provinces except for Quebec, where benefits are higher, the basic benefit rate is 55 per cent of earnings. The benefit maxes out at an annual income of $43,200, meaning that the maximum payment is $457 per week. As just one in five mothers receives a top-up payment from her employer, the earnings gap can be quite wide.
I started to think about financially preparing for a maternity leave as soon as I saw the two lines on the test stick. Consider developing a financial plan as just another healthy habit to pick up in pregnancy. Not only will having a plan help keep your budget in shape, it will put your mind at ease and allow you to better enjoy the time you spend with your new arrival.
“We saved up a big chunk of money,” says one friend, who had her second child at the age of 31. “We couldn’t save up an entire year’s salary, but we looked at my income net of tax, subtracted what the government pays and put that in the bank.”
For this friend, who has always been frugal, saving enough to cover a one-year leave from her job was relatively easy. She and her husband were living debt-free. They had already paid off the mortgage on their starter home and had started saving for a larger place.
Another friend admits that she was not as frugal as she’d hoped to be during the maternity leave she recently took to be with her first child. However, she developed a better sense of how much to save for the next time. “Now I know what we need,” she says. “My estimation is that we need an extra $1,000 per month above employment insurance. This way we can live without feeling like dramatically compromising our lifestyle.”
The first step to getting financially prepared is to understand how much you will need to live comfortably, after taking into account any benefits and top-ups. Keep a record of all of your expenses and try to identify ways to reduce costs. You may be able to trim monthly expenses such as phone and cable bills or insurance payments by shopping around at other providers.
Take a look at big costs such as your mortgage to find out how much flexibility there is in the payment amount and schedule. Your mortgage provider may offer the option to lower or suspend a few monthly payments should you need the extra cash while on leave.
One friend, who took a one-year maternity leave when her second was born, decided to skip a December mortgage payment to ease the expensive holiday season. “It helped me get that extra that I needed.” She made sure to catch up by increasing her mortgage payments when she returned to work.
For many families, though, disciplined spending will still not help them save up enough income to fully fund a maternity leave. When one mother of two I know became pregnant with twins, she and her husband made every effort to cut as much discretionary costs as possible. But the higher costs that come with a larger family meant that they did incur some debt during her leave.
“It will probably take two years to get back to our previous levels of savings,” she says. “I don’t stress about it much because overall our finances are okay and this is just something short term. I loved having the time to spend with my babies when they are little and I’m okay with the financial sacrifice.”
