How to Survive Maternity Leave and the Cash Crunch

Prepare for your baby with these great tips on how to manage your money and plan for the future.

How to Survive the Materity Leave Cash CrunchDeanna Wilmshurst, of Dartmouth, N.S., freely admits that she was blithely unprepared for the financial squeeze that accompanied her first maternity leave. Toward the end of her 12-month leave, “we’d get to the grocery aisle where the diapers and formula were and we’d be looking at another $50 for both,” she says. “I put a little cash aside, but I didn’t do enough to prepare for it.

Few people do, says Diane McCurdy, president of McCurdy Financial Planning in Vancouver and author of How Much is Enough? (John Wiley & Sons). “There are two things happening here,” she says. “You have more expenses and your income is reduced. It’s a double whammy.” Here are some tips on how to enjoy your new baby instead of angsting (and perhaps even bickering) about your finances.

Discuss Money With Your Partner

Since Wilmshurst and her hubby, Niels Nielson, are both MBAs, they had no trouble discussing finances. Their attitude: “We’re in this together.” They used Wilmshurst’s Employment Insurance (EI) cheques to pay the mortgage and Nielson took over the other bills. “You have to look at yourself as Family Inc.,” sums up McCurdy. “One person is working and one is getting reduced benefits, so how does the family cope?”

Track Your Expenses

Having trouble stretching your leaner income to cover the monthly expenses? The first thing to do is figure out exactly how much you have coming in and where your money goes. McCurdy suggests tracking expenses for a month by throwing every receipt into an envelope and then tallying them. If there’s more going out than coming in, it’s time to cut back.

Determine Your Needs

Divide expenditures into “needs,” like housing, food and commuting costs, and “wants,” like vacations, dining out and recreational expenses. Then hash out your priorities. For Wilmshurst and Nielson it was simple. “The mortgage and bills have to be paid first before any frivolous stuff.”

Cut Costs on Wants

Starting with the “wants,” look for opportunities to economize. Wilmshurst and Nielson gave up going to the movies and dinners out. Then they found ways to shave the cost of necessities. “We did a lot more meal planning,” says Wilmshurst. “I would cook a big roast or a chicken and then serve leftovers or use the meat in other meals for the rest of the week.”

In addition, she made all her own baby food and relied on second-hand clothing and equipment from a friend. Don’t have a supply of hand-me-downs? Try the second-hand shops, suggests McCurdy. “Babies almost always outgrow their clothes before they wear them out. And they can’t read labels yet. They don’t know about fashion.”

Opt For Pay Now Plans

London, Ont., couple Michelle Morenz and Les Miller bought a house in anticipation of the birth of their first son Josh. Then, they bought living room furniture on a “don’t pay for a year” plan. But Morenz cautions other couples not to choose that option unless the purchase is absolutely necessary.

“If you don’t pay it off immediately when the year is up, you get stuck paying interest for every day since you bought it,” says Morenz. “So we did pay it off. But it took us six months after I got back to work to again get comfortable with our finances.”

“We had zero spending money,” says Miller. Avoid building up debt if you possibly can, advises McCurdy. Even your tiny Einstein’s college fund can wait. “It’s so hard if you get behind the eight ball.”

Live and Learn From Your Mistakes

What did both Morenz and Wilmshurst learn from their first mat leave? That they should better prepare for the money crunch the second time around so both had a nest egg set aside when they gave birth to their second child. “I have the opportunity to get my overtime paid out, so I banked that,” says Wilmshurst. “And when I did my taxes, I put the refund away as well. You live and learn.”

As a freelancer, Camilla Cornell never actually qualified for mat leave… making her doubly qualified to talk about the money crunch.

Maternity Benefits

The basic benefit rate is 55 percent of your average insured earnings — for a maximum payment of $514 per week

Parental benefits
For all biological and adoptive parents the rate is 55 per cent of your weekly insurable earnings (up to a maximum of $514 per week) for up to 35 weeks. Mom can collect the whole 35 weeks, or dad can, or it can be divided between them. You may also be eligible to receive a higher benefit rate if you are in a low-income (less than $25,921) family and receive the Child Tax Benefit.

Top up
Some lucky parents work for companies that top up their employee salaries during their leave, paying the difference (up to a percentage) between the EI benefit and their normal salary. The average top-up length is 17 weeks but can be longer — check with your Human Resources department.

A little more money
If your workplace can’t live without your input and you’re looking for a little extra cash, you can earn $50 per week or 25 percent of your weekly benefits — whichever is higher — while on parental leave. However, anything earned above that amount will be deducted dollar for dollar from your benefits.

You can also apply for the Universal Child Care Benefit (UCCB) delivered by Canada Revenue Agency. Parents receive $100 per month for kids under age six. Some families may also qualify for the Canada Child Tax Benefit (CCTB). The amount varies on region, income level and marital status, so check with the Canada Revenue Agency.

Money Saving Tips

  • Try living on one salary prior to mat leave. You can bank the second income for an emergency fund and you will be better prepared to live on less.
  • Opt for previously loved clothing, equipment and toys. Check out garage sales, second-hand stores and consignment shops.
  • Trade babysitting services with other parents.
  • Start your own gourmet club. Each couple can make a course, bring their babies along, and have a wonderful night out for a pittance.
  • Defer RRSP contributions until you’re back to work. The contribution room carries forward, so you won’t lose it.

What is your spending personality? Find out with our family finance quiz.

12 responses to “How to Survive Maternity Leave and the Cash Crunch”

  1. Ana says:

    Cash crunch. What a joke. I’ll start with I am Canadian, but Canadians need to realize just how good they have it for maternity leave. Let me explain real cash crunch to you. You live in the States. You get 12 weeks off. This is not *paid* leave, this is just leave where at the end you’ll get your job back. So try this on for size: Unless your employer has a better plan or you are in California (when you’ll get paid 55% salary for all of 6 of those 12 weeks), you will have zero cash for that time. And if you’d like to take a whole year off, here’s how it works: You give up your job, take a year at zero pay, and then hope you can find a new job after the year is up.

    I think Canada is great for having such good maternity benefits, but if I hear one more privileged Canadian Mom complaining how tough it was to survive on (gasp) only half my salary for the year I may be sick. Not only do you get paid *half* of your salary for being a mom, for an *entire year*, but at the end of it you even get your job back. Guaranteed. Be thankful people.

  2. Rhoda D says:

    Canadian taxes far exceed American taxes, whether it be income tax, property tax, licence tax for vehicles, fuel tax, alcohol/tobacco tax, sales tax, goods & services tax, etc. This is the prime reason that Canadian (specifically Ontario citizens) have OHIP, extensive social services and a myriad of employment insurance benefits, which are a safety net for our society to protect the most vulnerable and to ensure that our family values are respected as a collective society.

    Recognizing the benefit of bond between mother and child (maternity leave) and the bond between father and child (paternity leave) encompasses and rather justifies the amount of tax we pay for these social benefits. As a democratic society, we have collectively decided that these benefits are worth the cost.

    All citizens in Ontario, Canada pay taxes to ensure these benefits are provided to our growing families who are raising children. It is not a case of “apples to apples” comparison. If Americans paid taxes equal to Canadian taxes, USA would be able to afford the benefit of maternity leave AND Paternity leave. Our moral values and resultant existing tax base can afford it.

  3. Blake Eligh says:

    I’ll second Rhoda’s comments on our tax system, and add that having a baby is a life move that requires financial forethought (much like other major life events like moving, buying a car, taking a new job, or getting married). If you want to have a baby, you need to look at your budget first.

    I certainly didn’t make half of my salary on my first maternity leave; I was self-employed when BabyB arrived, so I wasn’t eligible for ANY EI the second time around.

    Also, household expenses (mortgage, car payments, hydro) must be covered, even on a reduced income. If there are medical issues, there’s also the issue of benefit plans (many parents aren’t covered by company benefit plans). And at the end of that year off, if parents return to work, infant care can reach $2,000/month in some parts of the country. Tough to save up for that event when one is on half salary.

    I wouldn’t trade my maternity leaves for anything, and I’m grateful I didn’t have to show up for work just a few weeks after welcoming a baby (seriously, US moms, tell us how you do this!). But the finances aren’t simple, and it’s glib and inaccurate to categorize all Canadian mothers as privileged.

  4. I agree with Blake and Rhonda, supporting a family in the child’s first year of life is something that we as a society have deemed to be important and have agreed to support with our tax dollars, regardless of whether we personally use them or not. We have chosen to live in a country that maintains this social support system, knowing that we pay for much of it through higher taxes. I am grateful for the opportunity to live here, but knowing that not all countries put as much priority on a child’s first year does not mean that I stop pushing for the best conditions (financial support, daycare options, etc.) possible for Canadian families.

  5. Mike says:

    Well you clearly wrote this for people with two incomes, good careers & a better than average income. How about someone with this scenario….Wife works full time earning around 2300 per month before tax. Husband cannot work because A. There is no jobs in the area & B. He isn’t allowed to work because he is still awaiting his permanent residence application to be accepted. So 55% of the wife’s wage = 1310 – 10% tax (i’m hoping here) = 1180 + 200 UCCB (will be our 2nd child), + around 300 CCTB (i’m also estimating & hoping with this) + 90 Trilium benefit = around 1770 in our hand per month. Now this is where it gets interesting…. BILLS!!! 611 (mortgage) + 250 (Hydro) + 100 (Bell – its been cut back to the lowest price we can go) + 370 (Car Payment) + 110 (Car insurance) + 15 (bank service charge) = around 1450. So we subtract the amount coming in by the amount going out and we are left with around $320. Now house insurance still has 2 payments left in March & April of $300 each and the water bill comes out every 1/4, usually around $180. Property taxes also come out in March and are usually around $1900. So we are running in the red here and we still haven’t included food. We try to save money but to be truthful, the cost of food in Northern Ontario is a bloody disgrace so our bills for that is usually over 300 dollars per month. We do have a couple of grand saved but that will be gone in the blink of an eye to rising energy costs (my hydro bill was 350 dollars this month), property taxes and water bills. So my question to you, can you write a blog that helps out people like myself? OR should we just be expected to sell our house & car before anyone helps us? Canada is a joke & the sooner I leave this country to return home, the better!

  6. Kels says:

    I agree. I make $1000 a pay check and thats more than minimum wage in Manitoba and my fiance makes $20 an hour and we both work full times and if i take mat leave EI only pays 55% and theirs no was we can make $500 a week ( if that) and still pay our bills. We dont even have cable or internet. Just house, car, phone, and hyrdo . To be honest i have to put my plans on the back burner and try and save for 2 or more years so that i am able to stay at home for 1 year with my child and raise him/her before sending them into daycare and having to go back to work full time. Why is EI so low? only 55% with a max cut off? I dont know how people do it. Most of my friends are broke, maxed out credit cards, and moving back into parents homes when they are mid twenties or early thirties because they cant afford it.

  7. Kels says:

    I meant to say $500 every 2 weeks not every week. And thats the MAX i can hope for so its more like $300. Its got my Fiance and I in a real crunch that were having to choose 1 ultimatum over the other- Have a child and loose my job and be broke or not have a child and keep my career. Im not even promised my same full time position when i come back and chances are after a year ill lose my manager position and just be a part timer so that isnt going to cut it either and we need to plan this sort of thing before planning the baby. Mat leave is suppose to let you live while affording your bills. So why is it lower income when you now have more expenses ? The only real way around it is to save for years prior to baby- and if you didn’t plan for the baby and got caught in a unexpected pregnancy- then i feel for you. Because i myself wouldn’t know what to do!

  8. Liza says:

    We’ll to answer Mike..if your not ready (financially or otherwise) then you should not be having a baby.

  9. Lindsey says:

    Then go ‘home’ Mike. If it is better in your country, why are you here and applying for a permanent residence?

  10. annoyed canadian says:

    two comments. if you cant afford a 3rd child, then maybe you should have thought about that before you got pregnant. and you are complaining about the trillium benefits etc from the gov. you are luck you you receive these benefits and if you dont like canada then leave.

  11. Danielle Lavoie says:

    that’s rude…

  12. Annoyed by Stupid People says:

    This is the dumbest rant ever. First, If youre not working, then you stay home and raise the kids, your wife goes back to work and youre back to square one. Your wife will continue to bring home her full pay check and you can continue to sit on your ass all day. Yes, its not ideal and probably will suck for the wife to go back to work so soon, but if you cant afford to have you not working and live off her 55% income, then dont. Second, if you hate Canada so much then leave. No one forced you here. Why dont you go to the US where they only allow 6 WEEKS of mat leave. You’ll be begging to come back. Third, if you cant afford to live comfortably on your current income, then why would you bring another child into it? Did you think having more kids would make your situation easier? Stop making babies. Youre just an idiot.