Preparing for parental leave

Taking a parental leave can be a wonderful experience for new parents, but it can also be a financially challenging time.

In Canada, the government offers some financial support for parents on leave, but it is important to also plan and prepare your finances beforehand to ensure a smooth transition.

Here are some tips on how to financially prepare for a parental leave:

1. Understand the government benefits available to you—The basic rate used to calculate maternity and parental benefits is 55 % of your average insurable earnings, up to a maximum amount ($650 per week in 2023). For extended parental benefits, this rate drops to 33% to a maximum of $390 per week. Eligibility requirements can be found on the government website.

2. Create a budget and stick to it—Creating a budget is an essential step in preparing for a parental leave. This will help you to understand how much money you will need to cover your expenses while on leave. Make sure to include all your monthly expenses, such as rent, utilities, groceries, and transportation. Consider also the additional expenses that come with having a child, like diapers, baby clothes, and childcare. Once you have created a budget, make sure to stick to it as closely as possible.

3. Save as much money as possible before your leave starts—Saving money before your leave starts is crucial in ensuring that you have enough money to cover your expenses while on leave. You should aim to save at least three to six months of living expenses to ensure that you have a cushion in case of any unexpected expenses. You can save money by cutting back on non-essential expenses, such as eating out or subscription services. You can also consider taking on a part-time job before your leave starts to save extra money.

4. Consider alternative sources of income—While the government benefits can help to cover some of your expenses while on leave, they may not be enough to cover all of your expenses. Consider alternative sources of income, such as a part-time job or a side hustle. Many parents choose to start a small business or find online work to supplement their income while on leave.

5. Look into government programs and services for additional support—The government offers various programs and services that can provide additional support for parents on leave. For example, the Child Care Fee Subsidy program can help with the cost of childcare, while the Canada Child Benefit program provides monthly payments to eligible families to help with the cost of raising children.

6. Prepare for changes in your taxes—Taking a parental leave may also affect your taxes. For example, if you are receiving government benefits while on leave, you will need to claim them as income on your taxes. You may also be eligible for certain tax credits, such as the Canada Child Benefit. It is best to speak with a tax professional or use tax software to ensure that you understand how your taxes will be affected while on leave.

Taking a parental leave can be a financially challenging time, but with the right planning and preparation, you can ensure that you have the financial support you need to enjoy your time with your new child.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.