Welcoming a baby to the family is an exciting, challenging time for new parents. And many moms-to-be plan to take advantage of the current 12-month maternity leave (which the Trudeau Liberals have promised to extend to 18 months). But in planning for mat leave, what do new parents have to consider financially?
If you plan on leaving the workforce for a year or so, you can ease a bit of the financial burden (which isn’t really all that heavy for a newborn), by starting a disciplined savings program during pregnancy, and ideally even before. You’ll need those funds during maternity leave, during which your income will typically drop. Save whatever you can, but ideally, set aside 20% of your after-tax income in the year or two before baby arrives.
And don’t just put it in what’s laughably called a “savings” account. Talk to a financial advisor about investing your savings in assets that produce a decent return. I don’t mean speculating or gambling, but perhaps solid, dividend-producing stocks or income funds. Set up a regular savings plan with your advisor, ideally, some sort of automatic pre-authorized weekly or monthly transfer, so that your saving becomes like another routine expense or withholding on your paycheque – invisible, in other words, until you start seeing the investments mount up in your monthly statements.
Get all your benefits
As for benefits, these don’t come automatically. Make sure you apply for Employment Insurance (EI) maternity and EI parental benefits, as well as the Canada Child Benefit.
According to the government, for most people, the basic rate for calculating EI benefits is 55% of your average insurable weekly earnings, up to a maximum amount. As of January 1, 2016, the maximum yearly insurable earnings amount is $50,800. This means that you can receive a maximum amount of $537 per week.
According to the government, you will stop receiving EI benefits in any of the following cases, whichever comes first:
You have received all the weeks of benefits to which you were entitled; or the maximum benefit period of 52 weeks has been reached; or the payment timeframe during which you can receive benefits has ended, as follows:
* EI maternity benefits can be paid for a maximum period of 15 weeks and must end 17 weeks afterthe week you were expected to give birth or the week you actually give birth, whichever is later; or
* EI parental benefits can be paid for a maximum period of 35 weeks and must end 52 weeks afterthe week your child was born or was placed with you for adoption.
Another sure-fire budgeting tip that can save you thousands is to control the urge to splurge on plastic. During pregnancy and in baby’s first year, stay off credit. Caffeine and alcohol during this period are bad for baby’s health. And credit is likewise bad for your financial health. The last thing you want to deal with during that busy first 12 months are credit card balances carrying annual interest of 20% or more. Do not put more on your credit card than you can pay off fully every month. Better yet, put the card away, and use your debit card or cash for routine purchases. It’s a good way of forcing you to think ahead and control impulse buying.
Courtesy Fundata Canada Inc.© 2016. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice. Securities mentioned are not guaranteed and carry risk of loss. No promise of performance is made or implied.