If you’re thinking about taking time off after you have a baby and have to deal with 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.
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 – you need to ask yourself the hard questions about your finances post-maternity leave. Check out my post on this below!
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Alright, you’ve decided you want to take unpaid maternity leave after your new little one arrives. You’re probably now wondering how you’ll survive on an unpaid maternity leave! 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 I’m now allowed 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.
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. 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.
Enter your email below to grab your FREE maternity leave financial spreadsheet. You’ll get immediate access to the password. Just download a copy from the resource library and you can plug in your specific numbers to help plan your unpaid time off.
How long can you take as an unpaid maternity leave?
We’re going to assume that you’re out of debt and have been saving money for extended unpaid maternity leave (or you’re going to have a lot of trouble taking one). This means your money will actually more than cover your expenses during this period.
In our scenario we’re going to combine your maternity leave pay, plus your spouse’s income, and the savings you WOULD have been saving during that time 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.
My next assumption is that you want to take off 14 weeks, so you’ll need to cover six weeks of unpaid leave.
Unpaid maternity leave calculation
As part of this post, we’re going to do 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.
Here is the basic case we’ll work with:
- You make $2k take-home monthly and will be paid $4k for your eight weeks off, per above
- Your expenses and combined salary are such that this $4k plus your spouse’s salary allows you to save $300 per month
- You want to take 14 weeks of maternity leave
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. It’s actually pretty simple 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 in the resource library. You’ll get access and the password as soon as you drop your email below!
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 appointments. Add that into the normal spending you outlined above.
This should be done and added in 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 above, 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 downloaded from the resource library and manipulate with your own numbers.
|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|
|Maternity Leave Income||$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 prior 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.
Step 4: Finalize the details
What are you doing about benefits and insurance coverage?
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 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. 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 leave, definitely ensure you understand the impact to your benefits, particularly health insurance.
Are you contributing to a 401k or 529?
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.
Do you have any other side income opportunities?
Many women get extremely creative when they’re looking to supplement their income on maternity leave. Here is a short list of things you could look into:
- Additional childcare – can you watch other people’s children to supplement your income?
- Teaching English online
- Online Virtual Assistant
- Cleaning Houses
- 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.
What can you immediately cut from your budget to lessen the impact of a lower salary?
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:
- Cell phone – switch to a low-cost plan like GoogleFi or Republic Wireless
- Eating out – fewer restaurant trips or carry out can equal big savings
- Groceries – shop at a low-cost retailer like Aldi
- Coffee or other one-offs – if you cut out a daily Starbucks this can result in significant savings monthly
- 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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