Budgeting for baby: How to financially prepare for parental leave
18 Nov 2022
First-time parents have a lot to prepare for. From picking out names to purchasing the necessities (and niceties), there’s no shortage of things to do. While your “to-do” list may be lengthy, making a financial plan for your parental leave will allow you to worry less about money and focus on being a new parent. We’ve set out some simple steps to help you plan for your child’s arrival and a few tips to help you make your baby budget.
Step 1: Estimate your post-baby income
Figure out what your post-baby or parental leave income will be. How much you are paid while on parental leave will depend on your workplace benefits and the type of government parental leave you choose to take. Make sure to review all workplace and government benefits in full for your entire family to properly estimate your parental leave income.
In Canada, most working residents are eligible for the following benefits:
1. Maternity and parental leave benefits
Most working Canadians are eligible to receive some sort of parental leave benefits from the government. Currently, in 2022, if you qualify, you will generally receive 55% of your earnings, up to a maximum of $638 a week for 35 to 55 weeks, or you can choose the extended option and receive 33% of your earnings, at a maximum of $389 a week, up to 76 weeks. The option you choose for your leave and whether you are the parent that gave birth may change the amount you receive on a weekly basis, as well as how long you can be on parental leave. The Government of Canada’s website explains the qualifications, limitations, and expected coverage of maternity and parental leave benefits, so you can accurately estimate your monthly amount.
2. Child and family benefits
Once your baby is born, you can qualify for the Canada Child Benefit through the CRA and other provincial family funding. To find out how much you might be eligible for, use the CRA’s child and family benefits calculator.
3. Employer benefits
Many employers offer top-up programs to help supplement your parental leave benefits. When you’re ready to disclose the news to your manager, check with them to see what coverage or additional benefits they might offer for new parents. If you have extended healthcare benefits through your employer, double-check your eligibility and the full terms of coverage. This is also a great time to review your benefits package to see what extras may be covered while you’re at the hospital and how to add your baby to your insurance plan.
Step 2: Make a pre-baby budget
Review your current budget and determine what you might need to spend before the baby’s arrival. If your finances are in the negative, meaning that your expenses are higher than your income, you’ll need to think about ways you can cut back on spending or increase your income. If you’re in a surplus, you’re well-positioned to plan for pre and post-baby expenses. Here are some tips:
- Open a savings account or investment plan, such as a TFSA, to save any surplus funds for a post-baby budget, an emergency fund, or your child’s future.
- Put the money towards “start-up costs,” such as a crib, car seat, clothes, diapers, formula, bottles, etc. You’ll likely purchase a lot of items before your little one arrives, so setting aside your surplus funds to cover these expenses is a great way to get a head start.
- Pay down your debts so that you aren’t worrying about payments as a new parent. This will also create a more positive cash flow, allowing you to easily cover the additional costs.
If you’re already living paycheque to paycheque or will be while on parental leave, it’s time to start finding ways to reduce your expenses before the baby arrives. Here are a few questions to ask yourself:
- Can you cut back on certain non-baby-related expenses so you can save more for your parental leave?
- Are there expenses that you can cut back on during your parental leave to help subsidize baby costs? Are there any baby items you can purchase second-hand or borrow from a family member or friend?
Step 3: Make a budget and stick to it
When your baby arrives, you aren’t going to have a lot of time or energy for complicated tasks like budgeting. Give your future self a break by creating a budget based on your parental leave income and expenses before your baby arrives. Having this set up in advance will be one less thing for you to think about. You can also try to set up automated payments for the year so you don’t have to keep track of when bills are due, and most banks now offer budgeting features or spending notifications that can help you stay on top of your budgeting while you are otherwise occupied with parenthood.
To learn how to create and basic budget and stick with it, check out our budgeting blog.
Managing debt while becoming a new parent
Having debt while trying to prepare for a new baby can be overwhelming, but you aren’t alone! If your debt payments are unmanageable or will be harder to meet while on parental leave, consider making alternative arrangements with your creditors with the help of a Licensed Insolvency Trustee. At Grant Thornton Limited, our Licensed Insolvency Trustees (LITs) can negotiate with your creditors and help you and your family get a fresh start! Call today for your free consultation, or book one online.