You're having a baby - congrats! Welcoming a child into the family is a happy and exciting occasion. But adjusting to a new addition can also impact your finances in a big way.
Here are four lessons I learned while on parental leave with each of my three kids.
Parental Leave Lesson #1: Live Within Your Means
Depending on what kind of benefits you have through your employer, it's very likely that your income during parental leave will be less than while working. Government child allowances can offset the costs, but this is probably not a time when you're going to have a lot of money you can set aside for saving.
With that in mind, living within your means will be very important. You don't want to end up with a bunch of debt when you head back to work. If you already have debt, try to pay off as much as you can before your parental leave starts — especially any high-interest credit card debt.
Look for ways to cut costs. If you're also trying to save for a down payment on a home, retirement, and/or your child's post-secondary education, expect to feel a little squeezed. Identifying your priorities and sticking to them can help prevent feeling overwhelmed.
I cut costs by clothes-swapping with friends for used baby and toddler wear. We also opted to stay in our small low-rent apartment for as long as possible to keep expenses down. We were able to save for a down payment between parental leaves — but not during.
Parental Leave Lesson #2: Set Aside Money for Taxes
After my first parental leave, I got hit with a pretty big tax bill when I filed taxes for the year.
The reason? I hadn't opted to have taxes deducted from my government benefits as I received them.
I made sure to have a little extra taken off for the next time I went on parental leave so I wouldn't be dinged again. Make sure an appropriate amount of money is deducted at the source when receiving your parental benefits.
Parental Leave Lesson #3: Be Flexible
Sometimes life doesn't turn out the way you think it will. When my third child was born, my partner took the bulk of the parental leave while I continued working from home.
The plan was that he would stay home full-time for about eight months. But after five months he was miserable and missing work so much he decided to go back early. I was able to then use the weeks he hadn't used. No matter how well you financially plan out your time on parental leave, things can change once the baby arrives, and it's important not to be too rigid in your plans.
It required some compromise from both of us, but with a flexible attitude, we found an arrangement that worked.
Parental Leave Lesson #4: Use Parental Leave as a Springboard for Change
You might find yourself less than enthusiastic about returning to work after several months off. If this is the case, it may be a good idea to look at your parental leave as a chance to contemplate a new start. You can use the time to research or redirect your career, depending on whether your finances can handle it.
During my last parental leave, I realized I needed a career change. I used a free employment counselling service and applied for jobs in a totally different field.
Don't Add Money Issues to What's Keeping You Up on Sleepless Nights
Parental leave is a temporary situation. Having a realistic view of your finances before the baby arrives will help you make the necessary adjustments to living with a lower income. After all, you don't want money worries to add to your inevitable sleepless nights with a newborn.
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