How much do I need to save before going on maternity leave?

how much do I need to save before going on Maternity Leave?We’ve been trying to conceive for about 6 months now so it’s getting more and more challenging to stay positive with every month that goes by. In an attempt to look on the “brighter” side, I wrote about 8 “positives” in not being pregnant yet, the most important being more time to pay off our debt and save up for maternity leave.

We still have a pretty significant amount of debt – $9,452.01 to be exact. But at the rate we’re going, we’ll have it paid off in a few months which will leave us with quite a bit of spare cash to put towards our Baby Fund.

But exactly how much will we need to save before I go on Maternity Leave?

The first thing I did was to calculate all of our monthly expenses:

  • Appliances: $169.56
  • Banking Fees: $20.26
  • Car Insurance: $161.73
  • Car Payment: $450
  • Cash Withdrawals: $560/$700*
  • Cell phones: $91.54
  • Gas: ~ $250**
  • Home insurance: $47.81
  • Internet: $49.71
  • Life insurance: $36.09
  • Mortgage: $2,122.88/$3,184.32*
  • Pet insurance: $80
  • Property Tax: $471
  • Utilities (gas): $165.75
  • Utilities (hydro): ~$260**
  • Van insurance: $61.50

* Payments are made biweekly, meaning twice a year, there is an extra payment. The lower amount is the standard amount for the 10 months of a year

** Rough estimates, vary monthly

The big missing variable of course is anything Baby-related (and any miscellaneous expenses). In consulting with a pretty frugal mama friend of mine, I learned that a baby would add maybe $200-$300 per month. In an attempt to budget conservatively, I added $1,000 per month for the Baby/Misc. budget.

This brings our monthly budget for 4-week months to $5,997.72 and $7,199.16 for 5-week months.

For a year, that would mean we would need $74,375.52 just to cover basic expenses ($59,977.20 + $14,398.32), averaging out to be $6,197.96/month.

What will our household income be while I am on maternity leave?

When we originally decided to have roommates, we agreed we’d only let them stay up until our wedding back in 2014. Then our wedding came along, and a couple of months later I decided to quit my job and go back to school full time. It was lucky that we still had the roommates (which brought in $1,100/month in rent at the time) because we wouldn’t have been able to get by on one income otherwise. We then decided the roommates could stay only up until the time we had kids.

Without Employment Income from the government, our projected monthly cash flows would be:

  •  Mr. Unchained’s income – $2,160 (rough estimate – he’s been working so much overtime, I’m not sure what a “base” paycheck would be)
  • Rental property income – $1,100

bringing in a total of $3,260/month. It’s very fortunate that we have rental income because without it, we’d only be bringing in $2,160/month – I have no idea how single-income families do it! Even with the rental income, we’ll still be $2,937.96 short per month.

Luckily for us, Canada has Employment Income Maternity Benefits!

Qualifying for Maternity Leave Benefits in Canada

Based on the Employment Insurance website, you would have needed to work 600 hours in the qualifying period, which is typically the previous 52 weeks. Since I am scheduled for 35 hours per week (not including overtime), it would take 17.14 weeks before I could qualify, which would be around 4.5 months. If you qualify for benefits, you could take a maximum of 15 weeks of maternity leave and 35 weeks of parental leave for a maximum of 50 weeks.

EI pays 55% of your salary, up to $50,800, meaning if you make more than $50,800, you could be getting significantly less than 55% of your salary. If you were making $50,800 or more prior to going on mat leave, you would be entitled to $27,940 or $2,328.33/month. Your salary is calculated based on how much you made during your Best Weeks, meaning even if you were between jobs before going on maternity leave, it might not affect how much you’re paid during your maternity leave.

The actual number of Best Weeks you must submit ranges from 14 – 22 weeks, depending on the Unemployment Rate in your area – the higher the unemployment, the fewer Best Weeks you have to submit. We fall under the Toronto area where the Unemployment Rate is listed at 7.3%. Based on the chart here, my benefits would be based on the salary received during my 20 Best Weeks of the previous 52 weeks. This means that even though I wasn’t working for nearly 2 months during our month-long trip to Asia, as long as I have clocked in 600 hours and have worked at least 20 weeks (which I would submit as my Best Weeks), those 2 months wouldn’t be counted against me when calculating how much I’d be entitled to.

Are EI Benefits taxed?

You may think that since you’re getting a benefit paid to you by the government that it wouldn’t make sense to give some of it back to the government in the form of taxes … but you’d be wrong. Maternity and Parental Leave benefits are subject to the same income tax brackets as normal income. The Federal Tax Rate for your first $45,282 of income is 15% while the Ontario Provincial Tax Rate on your first $41,536 is 5.05% for a total of 20.05%.

With the maximum benefits paid out being 55% of $50,800 (which is $27,940) and the income tax rate being 20.05%, the maximum net income would be $22,325.24, which works out to be $1,860.44 per month.

How much would I get from EI?

In my current position, my hourly rate is $26.50 and I am scheduled for 35 hours a week. Multiply that by 52 weeks in a year and my gross annual earnings should be around $48,230. Now this doesn’t take any overtime I’ve worked into account (which would be reflected in the 20 best weeks that I submit) but again, we’re calculating conservatively to ensure we have enough saved up for a year of maternity leave without having to resort to borrowing again from our Home Equity Line of Credit.

55% of $48,230 is $26,526.50, and since the tax rate is 20.05%, that leaves us with a net of $21,207.94, which works out to be $1,767.33 per month net. It’s not much, but it’s much better than nothing at all!

With our total required income to cover our expenses sitting at $74,375.52 for the one year and our total income (including the maternity leave benefits) being $60,324, this gives us until our baby is born to save up the difference of $14,051.52, which, in the “worst” case scenario (i.e. the shortest amount of time) would be 9 months from now. (However, given that I’m not currently pregnant and that we’ve been trying for 6 months already, that would actually turn out to be more like the best case scenario!)

As a permanent employee, my husband is able to contribute up to 10% of his salary towards the purchase of his company’s shares, which the company then matches 50%. As of today, my husband has about $1,750 of shares that he can sell. (The rest is locked in).  Every paycheck, he contributes $180.47 towards shares, so if we multiply that by 2 (he gets paid biweekly) then by 9 (as in a 9-month pregnancy) and then by 1.5 (since the company matches 50%), by the time the baby is born, we would have $4,872.69, bringing our total in shares to be $6,622.69. This means we would have to save $7,428.83 before the baby is born in order to have the $14,051.52 saved up to cover our expenses for the year.

However, over the one year of maternity leave, my husband would continue to contribute to the share program. Assuming the same rate of pay (although he would be eligible for a raise by March 2017), over a year, he would accumulate another $7,038.33 ($180.47 * 26 paychecks per year * 1.5 for employer contributions), which means we would only be $390.50 short, which in reality isn’t very much given that we way overestimated the expenses we would incur and slightly underestimated the income we would bring in.

However, if we don’t want to dip into our shares (which would be the ideal scenario), we would want to have $14,051.52 saved up by the time the baby is born, which would work out to be $1,561.28/month. Given the rate at which we’re currently paying off our debt (i.e. the extra cash we have per month), once we’ve paid off our debt, we shouldn’t have any trouble saving up that amount within 9 months.

I’m so glad I finally sat down to crunch the numbers because I feel so much more comfortable knowing that even in the “worst” case scenario (financially) where we get pregnant this month, we will be totally fine financially as long as we stick to the budget we’ve set out and don’t sell our shares before then.

Other considerations:

  1. Our mortgage is up for renewal next April. Our current mortgage rate is 2.99% – depending on the interest rates at the time of renewal, our mortgage may increase or decrease (but more likely to decrease based on current interest rates).
  2. Our appliances loan will be paid off in about a year.
  3. Once our roommates move out, the expectation would be that our Utilities will decrease.
  4. Our “pet insurance” is self-funded – that is, we transfer $40 every other week to a savings account. In 1 year, we would have $1,040 saved up, and if money is too tight we could pause our savings while I’m on maternity leave.
  5. Property tax will go up next year, but it’s impossible to say by how much.

 

If you’ve had kids, how much did you have to spend per month on your baby? How much did you save up before going on maternity leave?

Mrs. Unchained 55

10 Comments

  1. Your post was really interesting, we went through a similar exercise before we had kids. Mother Nature was a in bad mood at at the time so like you, we had extra time to save up. I don’t know anything about Canadian health care but are there any costs associated with pregnancy care and birth? There are only a few basic things you need to set up – a cot, pram, car seat, bedding and clothes. I personally would add to that a baby carrier you can wear on your front do you can have your hands free and still hold the baby – for your own sanity. You can spend a lot or a little on these things. Many people give clothes as presents. Re ongoing costs, the only tamgible costs in the first 6 months are nappies and depending on your choice, bottles and formula. (I sterilised bottles in a basic plastic container in the microwave). Hope this helps.

    • Why, thank you!

      As far as I know, in Canada, there aren’t any costs associated with pregnancy and birth other than electives – for example, I believe private rooms would be extra (but may be covered by employers’ extended benefits), circumcision on baby boys are extra, etc.

      I have a feeling our “start-up” costs won’t be outrageously high – we have 3 nieces and 2 nephews and have been told that their stuff is being saved for us thankfully! I’m sure we’ll need to buy a few things (I can definitely see us needing window coverings as the bedroom we would use as the nursery has a cathedral ceiling, I’ll want a nice comfy rocker, etc.) I don’t think clothes will be a huge issue either, thanks to both hand me downs and presents often being clothes as you said.

      I think the biggest real ongoing cost would be diapers, but even then, I have been told you can get them on sale for about 25c each, or you can go the more environmentally-friendly option and do reusable cloth diapers (although I’m not sure the effect that has on utility bills, and I’m not sure how I’d feel doing laundry in a washer I know just cleaned poopy diapers!)

      Thanks for weighing in!!!
      Mrs. Unchained 55 recently posted…How much do I need to save before going on maternity leave?My Profile

  2. Its looks like you have planned it out very well and the two of you will be in good financial shape whenever you do get pregnant. I think babies can be pricey, but I also think a lot of people make it more expensive then it needs to be because they don’t consider hand me downs or second hand items for certain things. Luckily, living in Canada most of the medica costs are fully covered by our health care plan and the expenses start once to take the baby home. I learned alot from your post. thanks for sharing.

    • I agree that people do often make it a lot more expensive than it needs to be! There’s no need to be spending hundreds and hundreds of dollars on brand name baby clothes that they’ll just outgrow in a matter of weeks. Of course, I’m saying this now from a theoretically logical position – when the time comes, I might be tempted to do otherwise because, you know, my kid deserves nothing but the best!

      You’re right in that we’re very lucky with our Canadian health care system! So often, I hear people around me complaining about how heavily we’re taxed, but I just think, “Do you remember the last time you needed medical attention but we’re denied health care because you couldn’t afford it? No? Well you can say thank you to your tax dollars for that!”

  3. Since my wife is doing some couponing, we don’t spend much on the baby essential stuff every month. We maybe spend around 500$ month with the clothes. She also found someone who is selling used clothes that is like new and are branded clothes. Thats help a lot. For the saving parts, we didn’t saved anything.

    • Ah, I’m hoping for lots of hand me downs so the amount of money we spend on clothes will (hopefully) be minimal! $500 does sound a lot higher than the estimates I’ve gotten from friends around here but I think they may have just been referring to diapers and maybe formula.

  4. If you are able and willing – breastfeed!!! Hugely decreases your costs. If you have a Sobeys in your area, the pharmacy provides you free prenatal vitamins (keep taking them post partum). Sign up for every single baby program online (and sign up hubs, mom, siblings, etc) and you will receive tons of samples and valuable coupons. Pre owned baby furniture is the way to go (splurge on new car seat only). Diapers can go as low as 9 cents per diaper (huggies or pampers) so keep your eye out. I just finished mat leave and we made it work so well I didn’t have to return to work 🙂

    • Where are you located? We’re in Ontario!

      I didn’t know Sobeys has free prenatal vitamins! I’m on PregVit, a prescription prenatal vitamin so they’re covered by benefits.

      I’ve crunched the numbers and definitely wouldn’t be able to get by with one income other than for mat leave but I can see the appeal behind being a SAHM! I’m glad it’s working out for you 🙂

  5. Just found your blog, can’t wait to follow along and read more! Great article, and so much useful information for new parents / parents-to-be’s.

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