From almost the moment you find out you’re expecting, you start to plan: what can you do to support the baby’s health, what name should you choose, and how will you prepare your household?
Noticeably absent from the minds of many pregnant women, however, is how to start preparing for the financial impact of maternity leave. For expectant mothers who have at least some paid maternity leave, the burden is lessened, but most employers don’t pay for the entire 12 weeks of maternity leave, as granted by the 1993 Family and Medical Leave Act; it refers to unpaid time only.
Further, expectant workers who own businesses, have worked at a company for for less than one year, or are employed by a company with fewer than 50 employees aren’t protected under the Act at all.
Simply put: having a baby is not a financially easy feat in the United States. But, like any financial goal, the earlier you plan, the more feasible it is to achieve. Here are six ways to save for maternity leave.
Become your household CFO.
Successful saving is about defining a realistic plan of action with all parties who spend and generate income in your household. Steve Repak, Certified Financial Planner and author of Dollars & Uncommon Sense: Basic Training For Your Money, says that planning for maternity leave is really a 3-step process to determine what your income and expenses will look like when you’re out of work and caring for baby, at least to the extent that you can reasonably project them.
If you don’t actively stick to and monitor your budget, now is the time to start. For at least 30 days, track everything you and other family members spend to get a clear idea of where your money goes each month.
Next, project your monthly income during maternity leave. Include any payouts you will receive for partially paid maternity leave by your employer, unused vacation days, and any other extra income you plan on generating by freelancing or working part-time.
Now, subtract your maternity leave income from your expenses. If the number is positive, then you’re on the right track. If it’s negative, then that figure is the absolute minimum you’ll need to save for each month you won’t be working when the baby arrives.
Make saving mindless.
“Habitual” and “automatic” are key terms when describing successful saving practices. The idea is simple: if you never see the money, you won’t be tempted to spend it. Establish an automatic savings plan through your bank that will automatically transfer money from checking into savings, or contact your employer to have a portion of your paycheck directly deposited into your savings account each payday.
Savings can really add up by recognizing opportunities to capture “low hanging fruit.” Slash all non-essential expenses in your budget and dedicate that money to your savings account instead. If you get a tax return or bonus, skip buying the fancy crib and put it right into savings.
Get paid for your money.
Stick to accounts that are free of balance requirements and fees, and compare rates at local banks and credit unions. (The smaller players sometimes offer more competitive rates than major banks).
If you’re comfortable banking online only, some online banks offer very competitive rates. For exacmple, a high yield savings account at TIAA Direct currently offers a 1.25% APY with a $25 minimum balance requirement, and Smarty Pig currently offers a 1.00% APY on deposits with no minimums or fees.
Visit your HR department.
As soon as you are comfortable sharing the news of your pregnancy, Repak says to visit your HR department to clarify policies around health insurance, using vacation and paid time off as part of your leave, collecting partial payment for maternity leave, and claiming short-term disability.
Depending on the time of year and your company’s health care plan, your HR representative can also assist you with adjusting your plan and flexible spending accounts, which will allow you to devote more pre-tax dollars to upcoming medical and child care.
If you’re self-employed, don’t have employer-sponsored health insurance, or have high co-pays, your best line of defense is to be realistic and informed about the hard costs. Financial services professional Dennis Walker of Utah-based Intermountain Financial Group says that women who get pregnant without insurance can sometimes be deemed ineligible for coverage.
The first few months of a child’s life are full of visits to the pediatrician, which should be factored into your budget, too. Confirm what your insurance policy covers in regards to the duration of hospital stays, prescription drugs, medical materials, and how long the baby will be covered under your policy after birth.
Don’t fall for the registry trap.
Baby registries are big business and big budget busters. Only register for the items that truly need to be brand new and reach out to friends, family and consignment stores for gently used items before you splurge on a registry. (For helpful tips, check out MintLife’s “Budgeting for Baby: Where to Splurge, Where to Skimp.”
Saving for maternity leave is the precursor to a total budget overhaul once baby arrives. As soon as you’ve accrued enough financial coverage for maternity leave, keep your healthy saving habits going by planing for future childcare expenses, life insurance premiums, increased medical costs, and college savings accounts.
Don’t forget to take advantage of tax credits, too. For example, you may be able to claim the Child Tax Credit for the year your baby was born (depending on the time of birth), deduct qualifying child care expenses, and contributions to a College 529 savings plan. All of these will reduce your taxable income, leaving more money in your pocket.
Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.