Surviving a year on Maternity Pay

Going on maternity leave is usually an exciting time.  Your new baby is arriving in a few weeks, you don' t have to work! You can get caught up on your soaps and eat bon bons all day.  Okay,  maybe not.  So seriously, the one thing about going on maternity leave that is extremely stressful is having a reduced paycheck.  I asked around to get an approximate amount of money that EI pays out (in BC) and it was $1600 after tax.  Yikes.  That's considerably a lot less than what I make full time.  However it is better than nothing and you do get to spend a year (if you choose) with your baby.  Here is some information for you new Mommy & Daddy to be's...

Register for Employment Insurance (EI) the minute you stop working.  You don't want to register too soon or too late.  Visit the Canadian Gov't Website by clicking here.

The basic benefit rate is 55% of your average insured earnings up to a yearly maximum insurable amount of $42,300. This means you can receive a maximum payment of $447 per week. Your EI payment is a taxable income, meaning federal and provincial or territorial, if it applies, taxes will be deducted.  Maternity benefits are payable to the birth mother or surrogate mother for a maximum of 15 weeks.  To receive maternity benefits you are required to have worked for 600 hours in the last 52 weeks or since your last claim. Parental benefits are payable either to the biological or adoptive parents while they are caring for a new-born or an adopted child, up to a maximum of 35 weeks.  Parental benefits can be claimed by one parent or shared between the two partners but will not exceed a combined maximum of 35 weeks.

There is a lot to read about the different situations of being on EI, whether you give birth to your own child, adopt or encounter other issues.  I recommend reading the EI information page to ensure you know your rights.

I remember when I was pregnant and still making a full salary that I would need to make a few changes after I stopped working but I didn't really know that meant.  I've always been really good with my money and at that point my debt was relatively low.  A few months prior to knowing about my pregnancy I was pretty much debt free!  It was a major goal that I had and once I achieved it, I was ready to make a few life changes.  I moved downtown (from having a great roomate in Kits), a new job (from burnaby to yaletown) and at the time I didn't know it but from single land to dating (and then parenthood!).  Of course after being debt free the only thing I really had to do was.....SPEND money!  lol and did I ever.  I figured it was time to replace my ol hand me downs to nice new (expensive) furniture.  It didn't take too long to rack up $5k in 'new things'.  Foolish maybe, but damn did my new condo (rental) downtown look fab!

So with that said, I'm pondering a life that includes a reduced salary.  I had just moved into Clayton's condo (with my fancy new furniture) and a bit of debt and thought "how hard is this going to be?" So I asked a friend.  Her advice? "You'll figure it out".  Hmmmm.  I think I should have really looked into budgeting but now that I'm 9 months into the future, it's too late!  So as I write this, I want to share my suggestions and tips for you (new parent/future parent to be) on what I would have done differently...

Summarize, analyze, educate and reduce!  What does that mean? It means you need to pull up your socks, roll up your sleeves and get knee deep in your finances.  I thought I was....for the past few months I was seeing a financial planner regularly, setting up RSP/RRSP's, life insurance etc.  Nope, that wasn't good enough!

So here is how I started:

1.  I made a summary of all the debt and savings that I had in my name (best to deal with your stuff first before you tackle the relationship expenses). I listed off all my credit, including interest rates and how much I owed.  I then listed all my investments.  And finally all my bills.  Now that I had a better understanding of where I was financially, it was time to make that outlook....better.

2. I analyzed where I was at and figured out what I could change.

3.  I educated myself on my options.  I called the bank and asked for a 'no fee' credit card instead of the 'points' credit card I had. (Some banks offer no fee points cards).  I also asked the bank if they would lower my interest rate.  Currently my card is at 7.9%.  Yes, CARD.  Singular.  I only have one!  Do you really *need* more than one?

4.  I reduced!  Next I went through each monthly bill and tried to find a way to reduce it.  I dealt with the cell phone next.  While I was working, my employer paid for my blueberry, unfortunately when you go on Mat leave, they take it away :(  So I had to buy a phone (boo) and get a contract.  I probably should have gone 'pay as you go' but that's up to you.  I went on a decent basic plan, focusing more on daytime minutes and text messaging.  I have no call display (don't need it), and no web access (don't need it).  It's basically an emergency phone as I'm usually home all day with a regular phone (with free long distance).  The next thing I did was see if the bank would lower my monthly service fees by having multiple products (visa, loc, etc) and was able reduce my bank fees from $19.99 down to $11.99.  So go through all of your items and find a way to pay less!  One thing I wish I would have done (and may still do while I'm on my last 3 months of mat leave) is reduce/hold my RSP/RRSP contributions.  It's important to contribute to your retirement but it's not worth going into more debt for.  Once you've given your financial overview a makeover, it's time to start a budget!  I'm a HUGE fan of 'Til Debt Do Us Part' or TDDUP as the fans call it.  Gail Vaz-Oxlade is a miracle worker getting average joe couples to climb out of their black hole debt pit.  I highly recommend watching her show, you can even watch past episodes here and subscribing to her blog.  I have yet to buy/read her book, book and planner but they are on my 'to buy' list (when I've saved enough money!).  Also, read my recent post about Smart Cookies and you'll get some other pointers from me!

Ultimately it's very important to not spend money that you haven't earned and avoid using your credit card as much as possible.  Some of you may have a partner/boyfriend/husband to support you financially or you may be completely on your own.  Getting in control of your finances before you get pregnant will put you in the best financial situation because if you wait like I did, you might be in a lot more debt than you expected to be in.  Life happens, babies can be expensive and unexpected bills may come in from nowhere.  Don't get caught by surprise :)

That's all I can think of for now but I'd *love* to hear what else my readers who have been in the same situation (or just on EI) have done to live off of a reduced salary or just reduced their debt for the fun of it ;)

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