It is understandable that you will want to take advantage of the full maternity leave benefits offered by your employer. However, this can be a challenge once disability payments end, which is six weeks after delivery in most situations. The best time to plan for the loss of income during your maternity leave is during the first weeks of pregnancy.
Start Saving Money NOW!
Your first step can be to make adjustments to your current paycheck that will allow you to start a savings account, or increase your contributions to a current account. “You can adjust your withholdings if that makes sense for your family’s situation,” says Rose Ann Slawson, CPA, partner at J.H. Cohn, LLP in Roseland, New Jersey. “Your taxable situation is going to be different as a result of you taking time off and not receiving pay during that time. You can adjust your withholdings earlier and be able to take home some more money and save it.”
“The other thing that you can do is you can start thinking about flex spending accounts. A lot of companies have flexible spending accounts,” says Slawson. Depending on your delivery date, and when you are eligible to sign up, you may be able to enroll prior to the start of your leave.
Most companies allow enrollment only upon hire or at the end of the year. A flexible spending account, often referred to as a dependent care account, allows you to reduce your taxable income by the number of dollars you spend on childcare expenses. Enrollment in one of these accounts will also allow you to change your withholdings.
Slawson reminds parents that if there are other young children in the household, daycare expenses can be reduced or eliminated while the mother is at home during her maternity leave. This reduction in monthly expenses, along with the elimination of commuting costs and other work-related expenses can benefit your financial situation during your leave.
Examine Your Expenses
“You have to know where your money is going to know where you can save money,” says Mary Snyder, co-author of “You Can Afford to Stay Home with Your Kids”. “Most people can’t save money, not because they are living at the edge of their means, but because they have no idea how much they are spending each month or where they are spending it.”
“Grab a pencil and a notebook and write down every dime and dollar that you spend for a whole month. Count it all from the pack of gum to the car payment. Once you have taken stock for a whole month, categorize your spending,” says Snyder. “Where is your money going? Where can you save?”
Re-evaluate Your Expenses
A few of your expenses will increase while you are on maternity leave. “The added cost of diapers alone can screw up a budget,” says Cate Shaw from New York. “We also found that since I was home all the time, our heating bill went up.” Cate has some suggestions for mothers on maternity leave. “To save money, I think it makes sense to use coupons and buy diapers when on sale. Use washable nursing pads instead of disposable ones. Make your own baby wipes,” she says. “When friends or family ask what they can do, ask them to bring you a bag of groceries or a bag of diapers. It makes your life easier and cuts down on costs,” says Cate.
Spending on Maternity Leave
Snyder suggests that families decide where they can cut back prior to maternity leave and during the duration of the leave. “Are you willing to give up the premium cable channels for a $10 a month savings,” she asks. “What about forgoing your latte and danish every morning to save $6 a day? Can you skip going out to lunch twice a week to save $80 a month? Just how much can you save out of your paycheck each month?” asks Snyder. “Look at the long-term benefits of these savings. You will have a long and financially stress-free maternity leave and isn’t that what this is all about?”
Reducing your current expenses so that you can start up a savings account now will benefit both you and your baby later. “Set up a separate maternity savings account and put your weekly savings into this account. This will be the money that carries you through your leave. The more you save, the longer you stay home with your new baby-what a great incentive,” says Snyder.