If you’ll be welcoming, or recently welcomed, a child into the world, congratulations! This should truly be a pivotal and beautiful moment in your life. But with all the happiness and joy, there may also come some anxiety, particularly around finances. But with the right financial plan and budget, you can set yourself and your family up for successful parental leave.
Parental leave, also commonly called maternity/paternity leave, is a period of time where the parent(s) take time away from work following childbirth or the start of adoption/fostering. A baby’s early development is crucial, and this time is intended for the parents to bond with the baby and provide essential care. Parental leave timeframes can vary based on several factors.
In most cases parental leave laws are determined at the state level. In Pennsylvania, parental leave is tied to the Federal Family and Medical Leave (FMLA) Act. In New Jersey, FMLA is followed, and they also have their own New Jersey Family Leave Act (NJFLA). FMLA provides up to 12 weeks of unpaid, job-protected leave. Access to any paid leave during this time would be determined by the employer or state itself.
Before taking leave, make sure that you understand all your benefits. For additional resources and guidelines around FMLA, click here. You’ll also want to review your leave with your employer. Here are some employer-specific questions you should ask prior to your maternity or parental leave:
Additionally, fathers or partners should ask similar questions with their employers. Leave for a male spouse is known as paternity leave and may be offered as a benefit by some employers.
Once you’ve defined your leave benefits, you should begin to develop your financial plan. This starts with estimating what your income will be during your parental leave. Work with your partner in the months leading up to delivery to review what (if any) these income changes will be.
As your parental leave may present significant financial changes for you and your partner, consider practicing this adjusted budget in the months leading up to delivery. In doing so, you’ll prove to yourself and your partner that this adjusted budget is manageable. Additionally, it will make the transition much easier once it takes place. Plus, any money not spent can go into an emergency savings fund for your leave!
While you’re calculating your adjusted budget, it may also be a great time to consider developing a parental leave fund. Much like an emergency fund, these savings can go towards any unplanned expenses that could arise for you, your partner, or your baby. It’s crucial to have a sense of what your expenses will be during this time so you’ll have a sense of how much you should save.
Here are some simple tips you can follow to build your parental leave fund:
Depending on your balance, a High-Yield Savings Account could be a great option to store your parental leave fund. By opening this account, you’ll open a high interest savings account and earn higher dividends with your money. Here at American Heritage, we also offer Certificates with wide ranges of terms, including 9 months (the standard timeframe childbirth). With a certificate, your money will be put aside for the term (where you won’t be tempted to spend it) and allow you to earn dividends on your deposit.
From cribs to clothes to formula and beyond, there are a lot of expenses that follow welcoming a baby into the world. When you plan for your leave, be sure to account for these, especially when it comes to recurring expenses. These would include formula, diapers, clothes, and a few other items.
If you’re seeking some extra help in developing a budget with your newborn baby, read our blog here. This blog takes you through what expenses to expect with your baby’s first year, as well as how to save amidst these expenses.
Prior to starting your parental leave, be sure to have full knowledge of your insurance coverage, as well as any documents or process you’ll need to complete and follow. By understanding your coverage, you’ll avoid out-of-pocket expenses and know the exact types of care you’re covered for.
When it comes to insurance, confirm coverage for:
Also, be sure to add your newborn to you or your partner’s health insurance soon after birth. This item, as well as several others, are covered in our checklist of tasks to make sure you complete in your newborn’s first few months.
There are also several documents you’ll want to review and/or update. Be sure to review any processes or documents you’ll need to complete with your employer before taking leave. You’ll also want to update your will, establishing your child as a beneficiary. You can also do the same for any life insurance policies, as well as retirement accounts (such as 401(k)s and IRAs).