Maternity leaves in the developed world vary in length and pay from nothing to 14 months at no pay to 100% covered.
Canada offers one of the most generous government-sponsored leaves available: a full 12 months off at 55% of your salary. This consists of 15 weeks maternity leave to be taken by the mother. There is an additional 35 weeks of paid parental leave that can be taken by either parent.
Sad news surprise: as a self-employed person, I didn’t qualify. Whomp, whomp.
In Canada, maternity and parental benefits come out of Employment Insurance (EI). However, in order to qualify for EI, you have to pay in to it. Most self-employed freelancers and entrepreneurs, including myself, opt not to because the costs far outweigh any of the benefits over your working lifetime.
The upside of staying out of EI is self-employed Canadians get to keep an extra $2,000 in your business, and therefore your pocket. The downside is if you find yourself unexpectedly pregnant like I did, you will have no income during the time off you take to spend with your child.
As a non-pregnant Canadian, I always took a lot of patriotic pride in my country’s generous maternity and parental leave. Once I became pregnant and realized it was for Canadians who were not me, I felt a little betrayed. Suddenly, I was no better off than the average American woman who has little or no maternity benefits.
I know entrepreneurship is full of risks, but this was a risk I had never considered when making the leap from a secure job with bi-weekly paycheque to my entrepreneur funhouse life of never knowing when or how much I’ll be paid.
Save up your Emergency Fund first
Because I like to play the game of life on the extra-hard expert level, I got knocked up only after I had obliterated my emergency fund and incurred a whack of new costs moving into and furnishing a new apartment. My finances weren’t pretty. In fact, they were a disaster. And now I had an unplanned baby to contend with. The only solution was to put out as many fires as I could. Then rebuild my safety net: my Emergency Fund.
The only solution was to put out as many fires as I could and rebuild my safety net: my Emergency Fund.
VIDEO: How to Build an Emergency Fund
An Emergency Fund must always take precedence over all other financial goals. You can’t move towards any other financial goals without one. It’s more important than saving for retirement. It’s more important than paying down debt. It is the number #1 must-do on any financial checklist.
For this reason, if your Emergency Fund is low or non-existent, build it before your maternity leave savings. After all, you’ll need something there in case an emergency happens on your maternity leave!
If you can’t do 3-6 months, start here
I feel naked with anything less than $3,000 cash set aside in case of a catastrophe, so I made that my first goal. Saving started off slow. After all, I had a whack of all new prenatal expenses. But once I had recovered my $3,000 Emergency Fund, I set my savings on autopilot at $25/week.
Since I’d soon have a little one to take care of, I felt I needed a bigger EF to take care of us both. $5,000 is my new goal. In the meantime, $25 per week is a painless contribution that ensures I have plenty of cash on hand in case something comes up. It also let me refocus on saving for my maternity leave.
Determine how much maternity leave you plan to take
It probably doesn’t matter that I don’t qualify for Canada’s 12-month paid maternity leave because I can’t take 12-months away from my business or survive on the piddly $1,700/mo net income that it offers. So I had to decide how much time I wanted to take off.
Because I work primarily from home and would eventually need to adapt to a life that involved both work and a baby anyway, I figured three full months of leave followed by easing myself back part-time into my business felt right. Logistics of executing this aside, I knew I’d need approximately $10,000 in savings and/or income to make it work.
When it comes to determining how much you need for your maternity leave, determine how much time you want to take off for birth and baby, then multiply your total monthly expenses by that amount. This is how much you’ll need to save to keep the lights on while you’re changing diapers.
Identify expected income sources during maternity leave
If you’re like me, you might be screeching, “THERE ARE NO EXPECTED INCOME SOURCES!” but when your panic subsides you might be pleasantly surprised that things won’t be as dire as you think.
In the US, many women use short-term disability insurance to fund their maternity leaves. This isn’t an option in Canada, but if you’re American, check to see what insurance you have to rely on.
If you’re living with your partner and they’re working, you at least have the safety net of their paycheque to carry you through the time you need to take off to recover from the birth and care for your baby. Even if your income is being majorly reduced, it’s easier to stretch a paycheque than it is to make do with nothing.
Take solace in the fact that you still have something. Identify exactly how much it is so you know what you have to work with, and what more you need.
If you don’t live with your partner, they are still legally obligated to help you by providing child support. This is true even if you were never married or they didn’t want the child. Whether or not the father wants to take an active parenting role is irrelevant: he will still have to contribute financially. How much he will have to pay will be determined by his income, but you can get a rough idea by using the Government of Canada’s Child Support Table.
Finally, if you’re in Canada, you will receive the Canada Child Benefit, which is as much as $533 per month depending on your family’s income. This is an awesome benefit offered to Canadian families to help with the additional costs of providing for a child. For me, it meant I could upgrade from a 1-bedroom apartment to a 2-bedroom. This made both me and my baby so much more comfortable.
Once you know how much you’ll have coming in during your maternity leave, you can subtract it from your total expenses to calculate how much you need to make ends meet.
Save the gap
If you need $3,000 per month in net income to pay your bills and you’ll have $1,750 coming in, you’ll need $1,250 to make up the difference. If you’re taking a three-month maternity leave like me, this amounts to $3,750 in savings required. If you’re taking 6 months, you’ll need to set aside $7,500.
Whatever the amount, saving it can be challenging when you have pregnancy and baby expenses to take care of. Even if you think you won’t be able to do it, try. Remember that falling short a few hundred dollars is infinitely better than having no savings at all.
The best way to save for your maternity leave is in a dedicated savings account. I suggest a “Baby Fund” that is a catch-all for all pregnancy and baby-related expenses, including your maternity leave. Once you’ve calculated the amount you need, divide it by the weeks or months left in your pregnancy. Set up an automatic transfer of that amount from your chequing account to savings. Add any unexpected cash windfalls or bonuses to further top off the account. Then let interest take care of the rest!
Funding your own maternity leave isn’t easy. But it’s essential to take care of your finances before baby arrives. Then you can focus on recovering and spending time with your new little bundle of joy!
Ugh! What a hassle! It’s such a shame that maternity leave isn’t covered for everyone–including those who are self-employed. I’m in the U.S. where paid maternity leave is as foreign as bidets. It suckssss
Yeah it really surprised me =\ Oh well. While I would have loved a year-long government sponsored mat leave to bond with my baby, I know I can’t leave my company that long anyway. Entrepreneurship is hard for all the right reasons 😉
Wow, thank you for sharing such an informative and honest post. I love that you highlight the importance of an emergency fund, because you are right in that you can’t achieve any other financial goal without one. Hope all is well with you and baby!
Thanks Rachel! We are doing great =)
There are some great tips in here and I think you’ve done an awesome job of preparing for your little surprise! Self-employed Canadians can pay into EI to receive special benefits, which include mat leave. Self-funding may work best for many entrepreneurs but we are lucky to have options here. https://www.canada.ca/en/services/benefits/ei/ei-self-employed-workers.html
They can, but once you pay into EI you can never not pay into it — which over a working lifetime of a self-employed person is ludicrously expensive. It’s way cheaper to just take a short, self-funded mat leave than shackle yourself to EI payments until you retire.
Pregnant employees should look carefully into what deductions are coming out of their paychecks. Are you contributing the maximum to your 401K, for example? While you may not want to touch your longer term retirement funds, you may want to consider reducing those contributions temporarily if you’re really trying to maximize your current salary and savings for the short-to-medium term. You can always increase your contributions after you return to work and most of your baby-related expenses are under control.
100% agree, this is excellent advice!