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Getting financially ready for baby

April 1,2019

Author: Doug Carroll

Informed use of employment insurance (EI) benefits
The decision to have children is as personal as it gets. But as impersonal as it may sound, the when and how of doing so should take into consideration your finances. This means not just being ready to bear the cost, but also the potential reduced income. At least at the start, the EI system offers some help to new parents.  

Managing your expectations – Not full income replacement
Any way around it, you will be receiving less if you are not working. At most, EI replaces 55% of your average weekly earnings (to the maximum yearly insurable amount, presently $51,700). That equates to $547 per week, and that’s taxable.  To qualify, generally you need 600 hours of insurable employment in the 52 weeks preceding the claim.

Maternity benefit – For the expecting mother
This is for biological mothers, including surrogate mothers who cannot work due to pregnancy or a recent birth. It runs for up to 15 weeks, beginning as early as 12 weeks before the expected date, and may continue as far as 17 weeks after the birth.

Parental benefit – Shareable relief
Two parents can share up to 35 weeks of benefit payments over the 52 weeks after the week a child is born or adopted. Alternatively, you can choose the ‘extended parental benefit’ which pays at a 33% replacement rate up to 61 months in an 18-month period. The top weekly extended benefit is $328.

Parental sharing benefit – Additional ‘use-it-or-lose-it’ time
As announced in the 2018 Federal Budget, this new benefit is slated to begin in June 2019.  To encourage more equitable sharing of parental responsibilities, 5 more benefit weeks (taking it to 40) will be available if the second parent agrees to take a minimum of 5 weeks. Where the family opts for the extended leave, the addition (and requirement) would be 8 weeks for a total of 69. 

Build savings before baby arrives
Inevitably a new child means new costs, but some lifestyle expenses may drop off as your time and attention are diverted. The net cost may be ambiguous, but most certainly your income will be less. The prudent course is to establish a saving routine before the birth, which will achieve at least two things: 

1) Obviously accumulate money to supplement the family while you’re away from employment, and 
2) Reduce your pre-birth household budget by the amount of those savings, which can ease you closer to the kind of cash flow that you will have no option but to operate under once you’re not working.

Learn more about saving with motusbank.