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How to afford an unpaid maternity leave

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How to afford unpaid maternity leave: top tips to prepare for unpaid leave

If you’re thinking about taking time off after you have a baby and want a plan to survive an unpaid maternity leave, this post is for you. Whether you’re looking at two weeks or two years without a salary, there are some adjustments you’ll need to make in your life as you make your financial plan for a baby. Especially if that plan will cover any unpaid maternity leave.

First things first, you do want to ensure you’re able to financially afford a new baby. In this post, I’m going to dive into what we’re doing to afford a long unpaid maternity leave, but before we get into the nitty-gritty on that – you need to ask yourself the hard questions about your finances.

If you haven’t already decided what your finances will look like post-maternity leave, check out whether or not your budget is ready for a baby, then come back.

Related: Is your budget ready for a baby? Five must-dos to create a financial plan for baby

This post probably contains affiliate links. That means if you buy something using one of my links I may receive a small commission – at no additional cost to you! How cool is that? It’s kind of boring, but feel free to read my full disclosure if you want more info

Alright, you’ve decided you want to take some time off after your baby gets here. And for you, that means an unpaid maternity leave of some sort. You’re probably now wondering how you’ll survive an unpaid maternity leave. The good new is, it IS possible. If you plan ahead. Let’s dive into the step-by-step process you’ll need to take to ensure you can afford it – and how long you can take off.

If you’re going to become a stay-at-home-mom after your newborn arrives, you’ll want to ensure the cuts in your budget are permanent, since you’re not just bridging a gap until you’re paid again. 

If you’re just taking some time off, you can create a short-term budget that you’ll need to stick to until you’re being paid again. 

How much maternity leave pay are you entitled to (if any)? 

This will vary based on your employment situation. The first time I was on leave I was entitled to six weeks of short-term disability and no additional paid leave beyond my vacation. My company since changed its parental leave policy and with baby #2 I had 12 weeks paid leave, plus vacation. 

Understanding how much paid parental leave you’re entitled to is crucial as you plan on taking any portion of unpaid maternity leave. For many moms, a portion of paid maternity leave can allow them to double the amount of time they take off. 

{Mom Tip: ASK your HR department exactly how much disability and leave you are eligible for. This is a huge mistake many moms-to-be make by not asking for specifics. For instance, some insurance plans only cover a certain amount of leave, not the full 12 weeks. And some employees aren’t eligible for any leave if they haven’t been with the company for over a year. Ask about this first, before you plan on getting paid.}

For the purposes of this exercise, I’m going to assume you get six weeks paid time off, and you have two weeks sick or vacation time you’re planning to use toward maternity leave. That is a total of eight weeks paid. We’ll assume you make $2,000 take-home pay monthly to make the math easy. This leaves you with $4,000 for your eight weeks off

Want to do this exercise for yourself? Enter your email below to grab your FREE maternity leave budget spreadsheet. You’ll get access to the Google Spreadsheet and you can plug in your specific numbers to help plan your unpaid time off. 

How long can you take unpaid maternity leave?

The answer to this question depends on a couple of things:

  1. How long will your employer allow you to take off?
  2. How long do you have to save before your leave begins?

For the purposes of this exercise, we’re going to assume that you have been (or will be) saving money for extended unpaid maternity leave. This means your money will cover your expenses during this period. 

We’re not going into further debt by not working.

In our scenario, we’re going to combine your maternity leave pay, plus your spouse’s income, and the savings you accrued before your leave to count as your “income.” You won’t be saving anything additional, but we’re working to extend your time off, so this is a sacrifice I’m assuming you’re willing to make. 

Let’s assume that you want to take off 14 weeks, so you’ll need to cover six weeks of unpaid leave.

How to calculate unpaid maternity leave

Here’s a little exercise to show you want you need to do to cover a portion of unpaid maternity leave. If your entire leave is unpaid, you can just skip to the step where you find out how long you want to take off and how much it costs. 

Step 1: Ensure you know how much you’re really spending

Once you’ve decided how much time off you want to take, you’ll need to fully understand your living expenses to determine the cost of that time. As part of the maternity leave financial planning spreadsheet download, I included a second tab for budget planning. 

I use a pretty detailed budget tracking system (in excel) along with Quicken so we can track all our expenses by category. Quicken just spits out the numbers which we double-check, and I enter them into the budget spreadsheet. Although it’s detailed, it’s a pretty simple system and has been a great way for us to keep track of our finances. 

Since we’ve been doing this for years, I was confident I knew how much we spend per month. I also knew how much I’d really need to cover to take time off. 

If you didn’t snag it already, get your copy of the maternity leave financial planning spreadsheet.

Step 2: Create a baby budget

You’ll want a separate baby budget for the expenses you’ll need the first year your little one is born. Don’t forget to include any additional medical expenses for labor, delivery, and any of the first-year doctor’s appointments. Add that into the normal spending you outlined above.

This should be done and added as an additional expense into your budget tracking above. Obviously, you won’t have to pay for all those baby expenses in one month, or in one month of unpaid leave. But you don’t want to lose sight that they exist and overestimate your income. 

Step 3: Find out what you’ll need to supplement from prior savings

In the example, let’s assume your monthly expenses are $3.7k, which had you saving about another $300 per month as you prepped for maternity leave. This table is part of the spreadsheet you can download and manipulate with your own numbers.

Here is the basic case and all the assumptions I outlined above:

  1. You make $2k take-home monthly and will be paid $4k for your eight weeks off
  2. Your expenses and combined salary allows you to save $300 per month
  3. You want to take 14 weeks of maternity leave
Real-Life Example
Your Income for four weeks$2,000
Spouse’s Income for four weeks$2,000
Total Monthly Income$4,000
Four weeks of expenses$3,700
Typical Monthly Savings$300
Paid Maternity Leave “Cost” for 14 weeks$7,000
Paid Maternity Leave (From insurance & FMLA)$4,000
Spouse’s Maternity Leave Income$7,000
Prior Savings that will cover mat leave costs$1,050
All Maternity Leave Income$12,050
Maternity Leave Expenses$12,950
Additional Maternity Leave Need$900

You’d need to supplement about $900 in additional expenses, which would be three months of additional savings. 

Hence, you’ll want to ensure you’ve started building up your emergency fund with this padding more than three months before you go out on leave. 

You can adjust this table to the amount of time you’re planning to take off. We had decided that I’d be taking a significantly longer leave with our second baby. So we did the calculation based on annual expenses and my 14 weeks of paid leave. 

Related: Why I decided to take an extended maternity leave

Step 4: Finalize the financial details of an unpaid maternity leave

What are you doing about benefits and insurance coverage while on unpaid maternity leave?

Are you switching to your spouse’s insurance, or using COBRA if you take extended unpaid maternity leave?

An important thing to consider if you’re going to take more than a few weeks unpaid is the impact on your benefits. The main thing to consider is whether your benefits will be taken out of your salary when you return to work, or if you’ll need COBRA coverage. 

On my first maternity leave, I had about four weeks of unpaid leave. During those four weeks, I still had health insurance coverage. When I returned to work the appropriate amount was just docked from my pay for the payments I missed. I had no lapse in coverage.

With the new baby, I learned that with a planned leave of absence all my benefits would cease until I returned to work. That meant I’d need COBRA coverage until I was back on the payroll. I then found out that I’d need to cover the “cost to employee” PLUS the “cost to company.” You can find this cost on the form you get when you enroll in annual benefits. For us, this was an additional $1,400 per month

Since that expense was going to be way too high for us to absorb, we ended up switching to my husband’s insurance. Make sure you do this during open enrollment the year before you have the baby. Having a baby is probably a qualified life event, so if you didn’t make the switch during open enrollment, all may not be lost.

I’m SO GLAD I reached out to my HR department in advance and learned about this cost. If you’re considering a longer unpaid maternity leave, definitely ensure you understand the impact on your benefits, particularly health insurance. 

Are you contributing to a 401k or 529 currently? This may cease when you’re unpaid.

Can your family afford to lose those contributions while you’re out on leave?

Additionally, I found out contributions to my 401k would cease when I was out on leave. If you happen to be independently wealthy (in which case you’re unlikely to be reading this post) you can contribute to a separate IRA or retirement account with your husband’s salary while you’re on leave. 

Since that wasn’t our scenario, I decided to pause contributions to my 401k and our daughter’s 529 while I’m unpaid. Yes, this is a big sacrifice. I think we’ll still be able to cover some of her college expenses and retire even with this change. 

You should look at the impact this will have on your future investment accounts and earnings. If you’re already behind in saving for retirement, an extended maternity leave may only put you farther behind. 

Related: Why a long-term goal plan is imperative for creating a life you love

How to make money while on unpaid maternity leave: Could you start a side hustle?

Many women get extremely creative when they’re looking to supplement their income on maternity leave. Here is a shortlist of things you could look into:

  1. Additional childcare – can you watch other people’s children to supplement your income?
  2. Teaching English online
  3. Online Virtual Assistant 
  4. Cleaning Houses
  5. Selling things you make on eBay or Etsy

Basically, any hobby you’ve had before that you can turn into profit can be a side hustle during maternity leave. As long as the hours are flexible you can work them around your schedule. 

Affording an unpaid maternity leave is easier when you’ve already cut your budget

Finally, I’d be remiss to not mention cutting your costs immediately where applicable. This will just reduce your overall expenses and lessen the amount you need to cover when you’re off on leave. I’m not going to jump into a lot of detail here because there are probably a hundred places you can cut from your budget. Depending on your current situation here are some of the main culprits:

  1. Cell phone – switch to a low-cost plan like GoogleFi or Republic Wireless
  2. Eating out – fewer restaurant trips or carry out can equal big savings
  3. Groceries – shop at a low-cost retailer like Aldi
  4. Coffee or other one-offs – if you cut out a daily Starbucks this can result in significant savings monthly
  5. Cable/Internet – do whatever you can to get off the $200/month cable plans

Lowering your monthly expenses will not only help you on maternity leave but also allows for additional savings once you’re back at work. Trust me, once you see how expensive kids are, this is only a good thing!

I hope the above questions helped you think through some critical inputs to taking an unpaid maternity leave. These are just some of the things you’ll need to answer before you decide to take an extended unpaid maternity leave. 

Let me know if I missed anything, or how you’re prepping for your maternity leave in the comments below. 

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Preparing for maternity leave isn't only about getting ready for the baby. You'll need to ensure you're financially prepared for a new addition as well. Do some pre-baby financial planning to prepare for an unpaid maternity leave by making a baby budget. Click through to find out everything you need to prep for an unpaid maternity leave.

How to afford unpaid maternity leave: top tips to prepare for unpaid leave

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