Becoming a parent for the first time may be exciting, but you have to keep in mind the financial consequences of making this decision. Most likely, a baby will leave a sizable dent in your budget – so here are some of the things you should know to stay on top of everything.
1 The government of Canada will provide some support
New mothers get up to 15 weeks of Employment Insurance Maternity benefits. Also, moms and dads can take or share 35 weeks of EI parental benefits. The amount of the benefit depends on your salary. Most people are eligible for 55% of their average weekly earnings, up to a maximum of $537 per week. (that’s the amount you get if you make $50,800 or more per year). Apply for EI right after you stop working or else you are at risk of losing your benefits if you wait too long. Mind that there is a waiting period before any benefits are paid.
It’s a good idea to start saving and spending less than you make before the baby comes. People who are not used to budgeting may find themselves spiraling into debt and their standard of living significantly reduced. So get your savings going and start an emergency fund at least one year before you plan on having a baby.
2 If you earn money while on leave- the government will take its money back
You might want to augment your earnings by working – but be aware that it lowers your EI benefits. If you work while on EI maternity benefits – the government will deduct every earned dollar from your benefits. If you work while receiving EI parental benefits, you can earn up to $50 per week or 25% of your weekly benefit before any deductions are made. But, until Aug 6, a pilot project is in place, where you are able to keep 50 cents of your benefits for every dollar you earn, up to 90% of the weekly earning used to calculate your EI benefits.
3 Find out if your employer is willing to top up your EI
Even though it’s rare- some employers choose to top up EI benefits for their employees. Most view this as an important tool to retain valuable employees. In most situations- contracts are in place where employees agree to return to the same place of work with the same employer.
For example – an employer may agree to top up your benefits up to 70% of your earnings. If you are one of those lucky employees, you may want to continue contributing to your pension plan and pay premiums for your group insurance. Since the financial impact will not be as severe, you should continue with your financial plan and saving for the future.
4 Set up an emergency fund
If you need more time at home with your baby after your leave, or decide to have a second baby, you will need a significant amount of savings to cover your expenses. Even though two income families now comprise a majority- you might want to try and see if you can get by on only one income. Check to see if you can live with only one spouse working or start working part time and open your own business- daycare anyone?
5 Budget is necessary
You want the best for your baby- but at the same time you don’t want to forget about your bank account. It’s easy to get carried away with all the cutesiness and start spending away. While at it, make sure to set aside money for your retirement, along with investing in your education and health.
Fortunately, you can take advantage of government programs- there’s nothing better than free money. Take RESP -registered education plan for children- where the government matches your contributions. This can also be enhanced by the provincial own programs where they will kick in money just for opening an RESP ($1200 grant in BC for example).
We’ll keep you posted on more savings and budgeting tips- stay tuned.