Having a baby is one of the most exciting times in your life, but it can also be stressful. Not only do you have a new baby to care for, but with up to 18 months off work, your finances may take a hit too.
Many Canadians are unprepared for maternity leave and often fail to discover its financial implications before it’s too late. As a result, they are often forced to take care of their newborn baby on dwindling reserves.
While there are maternity and parental benefits that you can collect during your leave, you will still need sizeable savings to be able to go through this time period without any financial worries.
How Much is Maternity Leave Pay in Canada?
The basic maternity benefit rate in Canada is 55% of the average insured earnings for a period of up to 15 weeks with a cap of $668 per week. The same rate applies to parental benefits, but for a longer period of up to 35 weeks.
Most parents will take 12 or 18 months leave. On the extended leave (18 months), note that your maternity benefit will be reduced and spread out over the 18 months.
Parental benefits apply to both biological and adoptive parents. Either parent can collect the benefit or they can divide it between them. Parents in a low-income family (earning less than $25,921) may also be eligible for a Child Tax Benefit.
Tips on Saving for Maternity or Parental Leave
With a much-reduced income and increased expenses, you may find yourself struggling to cover bills towards the end of your leave. Read our tips for saving for maternity or parental leave.
- Start saving as soon as you plan to have a child. Once you’ve planned to start trying for a baby, try to save as much as possible by incorporating additional savings into your household budget. Call it your “maternity fund” and do not touch it until your baby comes along. To make sure that you won’t touch it, open a new bank account that is not connected to your debit card and deposit the money in there. To save enough money, you should try to start saving at least a year in advance.
- Prioritize your needs. Create a list of what you need and what you can do without. Rank the things that you need by their importance. That way, you will have a clear idea of what needs to be paid immediately and what can wait. For example, utility bills and the mortgage have to be paid, while eating out and entertainment can wait. Setting spending priorities can help you sail through these lean times with relative ease.
- Curb your expenses. After your leave starts and your income decreases, another way to help cover your monthly expenses and still have enough to last the full duration of your leave is to cut back on your spending. Give up your extra indulgences like small treats or fast food, and buy only things that you absolutely need.
With a little bit of planning, you can afford to take maternity leave. Budgeting for your upcoming time off is essential when you know you’ll be living on a reduced income.
If you need help with budgeting or debt, contact us today for a free consultation.
