Surviving baby’s first year
Smart planning, maximized benefits, the right money moves—here’s how to save a bundle on your new little bundle of joy
Smart planning, maximized benefits, the right money moves—here’s how to save a bundle on your new little bundle of joy
When Jacqueline Misshula went on maternity leave last September, the Toronto-based human resources manager had the typical concerns of most first-time parents. Could she handle the constant feedings, non-stop diaper changes, serious lack of shut-eye—and would there be enough money?
This financial worry is hardly trivial. By our own previous estimates at MoneySense, raising a child in Canada will set you back a whopping $243,660, or more than $12,825 a year, if you include everything from toddler-friendly Goldfish crackers to swishy shoes for high school graduation. But it’s that first year, when parents are juggling big-ticket baby expenses with slashed parental leave income, that creates a perfect storm for anxiety and debt.
“It’s definitely challenging,” says Misshula, now more than halfway through her leave. “We’ve had to make changes to our lifestyle in order to be able to still live in the city and maintain some normalcy.”
As Misshula herself has learned, there are indeed tips, tricks and hacks that can help new parents and parents-to-be survive the cash crunch of the first 12 months. From getting the most out of government and company benefits, to learning how to budget for a stroller, here’s everything you need to know to get through that first blurry-eyed year without breaking the bank.
Canadian parents are permitted up to 52 weeks off work to feed, care for and snuggle their new infants—and if you want the government to help you out with the accompanying drop in income, be sure to apply for Employment Insurance (or QPIP in Quebec) as soon as you take your leave to get the maximum benefits. With few exceptions, EI can only be claimed within the year following your baby’s birth or adoption placement, and once you apply there’s a two-week waiting period before you’ll receive any funds—although the government is reviewing this.
Also keep in mind that EI is only a partial panacea for your reduced earnings: It’s calculated at 55% of your gross income up to a maximum amount set each year—in 2016, it’s $537 per week based on $50,800 worth of insurable earnings. (But low income families with a net household income of $25,921 or less may increase their benefit rate to as high as 80% of their average insurable earnings.)
There are EI eligibility restrictions, too. Those who aren’t entitled include shareholders of a family business, the self-employed (unless you’re in Quebec or have opted to pay into EI well in advance of your pregnancy), and those who haven’t accumulated at least 600 working hours in the year before taking parental leave. That 600-hour threshold, which equals about four months of 37.5-hour work weeks, is particularly important to keep in mind when timing pregnancies. For instance, if a new mom decides to come back to work part-time at first, but then discovers she’s pregnant with her second baby only 15 to 18 months after the first arrived, she could find herself ineligible for maternity benefits the second time around.
Here’s something else you need to plan ahead for: Parental leave benefits are taxable. To get on top of a costly tax bill, Calgary-based tax analyst Cleo Hamel recommends talking to an accountant to estimate how much money you need to put aside in advance. “It’s a big hit,” she says. “If you’re only getting half of your wage, where are you supposed to come up with some extra money to put aside for taxes?”
OK, here’s some good news (sort of): If you’re too ill to work during your pregnancy, you are also entitled to 15 weeks of sick leave benefits on top of parental benefits. But if your company offers its own sick leave plan, you must use that first before applying for additional EI.
While not the norm everywhere, some family-friendly employers offer parental leave top-ups. For instance, consulting firm Accenture provides 100% of coverage for the first two weeks (when the feds cover nothing), and an additional 30% of income for 15 weeks, meaning that its employees would gross 85% of their salaries for the first four months or so. Meanwhile, medical technology firm Stryker Canada gives new parents a generous parental leave bonus of 100% of their salary for 26 weeks.
If you’re fortunate enough to receive such generous benefits, you can also feel extra chuffed about the fact that your boss isn’t offering it simply to be kind. Particularly in industries in which it’s difficult to keep highly skilled or experienced workers, top-ups act as incentives for employees to come back to work after a leave, says Nora Spinks, CEO for the Vanier Institute of the Family in Ottawa. “If I give you 20% or 25% of your pay and I know you’re going to come back, it’s a decent return on my investment.”
But even if your company doesn’t offer top-ups, there may be other ways to leverage company benefits. At Accenture, new parents who want to stay in the extended health program while on parental leave can opt to continue to pay their premiums. Likewise, some employers may allow you to continue to pay into your pension plan while on leave.
In fact, there’s no shortage of ways to use company benefits to your advantage. If you’re really crafty you can take a page out of Sarah Ueland’s book. The senior communications manager for Telus in Vancouver decided to use her employer’s stock option plan to create a stash of cash she could dip into once she was on parental leave. “It’s how I managed my spending.”
Just be aware of any possible EI conflicts when money comes in during your leave. Mothers receiving EI are not allowed to work within the first 15 weeks of maternity leave; if they do, each dollar earned will be subtracted from their benefits dollar for dollar. After those 15 weeks pass, either parent on leave is allowed to earn up to $50 per week or 25% of their weekly benefit—whichever is higher. (However, until August 6, 2016, a “Working While on Claim” pilot project is in place that could help parents hold onto more of their EI benefit if they keep on working.)
If you’re not sure what constitutes earnings, be sure to contact Service Canada or a tax specialist well in advance of your parental leave to ensure you won’t be impacting your EI benefits.
No employer benefits to speak of? Not to worry, you can still go the DIY route and create your own kind of home-grown version. That’s what Rachel Azagury, a marketing director in Vaughn, Ont., did a few years ago, the moment she discovered she was pregnant. She created two mat leave funds: one just for newborn needs, and another for any unexpected expenses like minor home repairs.
Azagury admits it wasn’t much, just a few hundred dollars saved up each month while she was carrying her baby. But that spare cash did eventually come in handy, she says. “I liked putting aside a little savings. Even if it’s only $200 a month, that’s $200 you wouldn’t otherwise have, right?”
Vancouver-based money coach Melanie Buffel likes Azagury’s savings moxie. But, she cautions, any expectant parents trying to feather their nest eggs in advance of baby’s arrival shouldn’t do it at the expense of ignoring consumer debt. “Look at the dollars coming into the house now and give every one of them a job,” she says. “If you can pay down any high-interest credit card debt before the baby comes, then that relieves some cash flow pressure later.”
Buffel’s best advice? During that nine months leading up to baby’s arrival, start taking the 45% of the salary you’ll be losing come mat leave time and split it up between debt payment and savings. Not only are you getting yourself in better financial shape, but you’ll be more psychologically ready for living on less when it’s no longer a choice.
If you’re self-employed, take some comfort knowing there’s actually a silver lining to never receiving any EI benefits while on parental leave: You can make as much money as you want during that 52-week period. No one can take away what they don’t give in the first place, right? So if you’re not eligible for EI go ahead and get paid for writing a report while baby snoozes in a bouncy seat beside you. That money is yours to keep—minus the taxes you’ll pay.
But remember, even those receiving EI benefits can still make a little cash on the side so long as the income earned falls below the government claw-back threshold. So there’s nothing stopping moms or dads from selling their barely-worn newborn clothing for a modest sum on Kijiji and then using the money to pay for all the diapers their little addition is going through. Even if you’re paid in cash, you’re still technically supposed to claim it with the government. (Just saying.)
In the case of Jacqueline Misshula, she found a unique way to continue working without incurring EI penalties. She started a small baby T-shirt company called Mo Green Clothing Co. (named after her son, Moses), which has her busy creating a website and working with designers and manufacturers. Because she’s spending her leave building up the business rather than turning a profit, she can continue to work without losing her EI. She’s thinking long-term and plans to start selling T-shirts later on. “I’ve wanted to do something a little entrepreneurial and now I’ve had time to really think it through.”
It’s OK to ease up on some of your savings and investment goals in those early days of child rearing. Raising young children is exhausting, exciting, heartbreakingly beautiful—and the most expensive stage of your entire life. So cut yourself some slack in the financial department, at least for a few years until you’re on your feet again.
Maybe that means taking advantage of your mortgage’s “skip a payment” option one month, or putting those Registered Education Savings Plan (RESP) dreams for your newborn on hold for a couple of years. For Misshula, it was all about scaling back her RRSP contributions for a time—formerly $500 a month, she’s currently paying $50. That’s a smart move, particularly from a tax-deferral perspective—because Misshula’s in a low tax bracket while on parental leave, RRSP contributions won’t be as valuable to her until she’s back at work and earning more income.
Rachel Azagury also admits to feeling some pressure to maintain her financial plans early on in her first maternity leave. But she quickly mellowed and became more philosophical about the cash crunch between diminished income and extra spending. “It’s only a year. You’re just kind of managing with what you have and coasting,” she says. “It’s a savings pause.”
This year’s federal budget made some important tax changes for families—designed to help parents stretch their budgets. The Canada Child Benefit (CBB), which kicks in July 1, offers monthly tax-free benefits tied to income. The maximum is $6,400 per child under six and $5,400 per child aged six through 17. Just keep in mind that you’ll see a reduction in CBB if your family’s net income is over $30,000 and again if it hits $65,000 or more; the number of children you have factors, too. Calculate how much money you’re entitled to.
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