By Helen Burnett-Nichols
Expecting your first baby? By all means get the nursery ready — but make sure you put your financial house in order, too.
Preparing for a baby is a time full of celebration, showers and shopping, but the arrival of a little one brings not only added expense for your family but also a noticeable drop in income for many new families.
If you’re eligible for employment insurance (EI) benefits (up to 15 weeks) and EI parental benefits (up to 35 weeks), you’ll receive up to 55% of your average weekly earnings, to a maximum of $501 per week, after a 1-week waiting period up front. NOTE: The 2017 federal budget proposed extending parental leave to 61 weeks, which adds up to 18 months of combined leave, but the parental leave benefit in that case would be only 33% of insurable earnings. Essentially, it would mean stretching the same benefit amount over a longer timeframe. The changes to the Employment Insurance Act required to extend parental leave haven’t yet been made.
At the same time, don’t count on your employer to top up your EI benefits. In its most recent numbers on the subject, Statistics Canada says only 1 in 5 new moms who received EI maternity benefits also collected top-up payments from their employers.
“Having a child, especially your first child, is really life-changing and having to worry about making ends meet on a limited income when you’re on mat leave is a stress that you don’t need,” says Caroline Cakebread, personal finance blogger for Chatelaine.com.
While you’re picking out baby clothes and deciding on a name, financial experts say it’s important to also plan ahead financially for the expected and surprise expenses of maternity leave.
Here are 6 steps to help you put your financial house in order before your baby arrives:
1. Make an accurate and realistic budget
Toronto-based blogger Shelagh Cummins, who at one point had 3 children ranging in age from 1 month to 5 years old, says her top tip for expectant parents is to know, to the dollar, how much money you will need to live on every month during maternity leave.
Before the birth of each of her children, Cummins and her husband did what they call a “State of the Union” exercise, where they identified all of their monthly and yearly financial commitments to get a clear picture of how much money they needed. They then divided expenses into needs and wants, being sure to include everything from bills, loans and travel to pension contributions and a buffer for “mommy activities.”
2. Understand your benefits
In addition to knowing what you spend, make sure you understand both the government’s maternity/parental leave benefits and any program offered by your employer. Find out whether you’re eligible and how much you’re going to receive per month. Don’t make any assumptions, says Sheryl Smolkin, a lawyer, writer and benefits blogger. For some parents, activities that affected their income the year before having a baby, such as being on sabbatical, may also affect their eligibility for EI benefits. Find out from Service Canada if you’re eligible for Employment Insurance maternity and parental benefits.
Taking an in-depth look at the income you’re likely to receive can also help you decide how much time you can afford to take off. Sometimes, says Cakebread, it might make financial sense to split the leave between yourself and your partner.
3. Save before you have your baby
Saving early to top up the income you’ll be receiving on maternity leave is important, explains Cakebread, whether to make ends meet, or to be able to treat yourself to dinner out or a pedicure, or to hire a babysitter once in a while.
Putting money in a tax-free savings account (TFSA) for a year or 2 before having a baby is a good option, says Smolkin, so you can draw on it while you’re on leave.
4. Know your group benefits
If you have one, take a look at your group benefits plan to see whether your life insurance, supplementary health insurance and disability coverage is sufficient. If you feel there’s a gap, then you might want to increase your group coverage or buy some extra private insurance. Make sure you name your new child as a dependent on all plans as soon as possible, says Smolkin.
5. Pay down debt
Paying interest on pre-baby debt is less than ideal when your income is reduced. Work on paying down as much of your credit card and student loan debt as possible before you have a family, says Smolkin.
6. Go easy on the spending
Having a baby is expensive enough without buying every new gadget to keep up with the other moms in the neighbourhood. One mistake new parents make is buying too much new baby stuff, says Cakebread.
“In the first year, a baby’s entire wardrobe changes over about 4 times,” says Cummins. Buying baby clothes from a consignment or second-hand store, getting hand-me-downs from family and friends and borrowing baby equipment can also help keep the pre-mat leave spending to a reasonable level.
©Sun Life Assurance Company of Canada, 2017