How to Prepare Financially for Parental Leave

The birth or adoption of a child is one of the most exciting moments of any family's life! Many parents take parental leave during this time, staying home from work to care for their child. If you’re planning to grow your family, make sure you have prepared financially for your parental leave period.

The United States is one of only six countries in the world with no national paid leave policy. The Family and Medical Leave Act of 1993 allows for up to 12 weeks of unpaid parental leave annually for parents of newborn or newly adopted children if they work for a company with 50 or more employees. Statistics show that only 19% of employees in the U.S. have access to paid parental leave.

With unpaid leave as many people’s only option, families must scramble for cash to cover their expenses during time away from work. A recent survey found that nearly 75% of women wouldn’t have any cash savings left after eight weeks of unpaid parental leave. If savings are depleted, parents might need to take out a personal loan and tap their 401(k) retirement accounts just to keep their heads above water and cover daily expenses. While leave is vital at this crucial time of the family's development, in the U.S. unpaid parental leave is too expensive for most families to afford.

It’s clear that families must prepare their finances for parental leave. If you see a new child in your future, consider the following:

• Employer parental leave options: The first step is to determine what parental leave benefits your employer offers. Does your employer offer paid or unpaid leave? Does it provide sufficient time for your needs? Are there any other financial benefits offered for new parents? Does your employer offer a short-term disability insurance policy that could cover 60 to 80% of your income for up to eight weeks? Do your research well ahead of time to know what is available to you.
• Review your current expenses and savings: Will your savings cover your family if you need to take unpaid parental leave? Start increasing your savings long before your new family member arrives. Take a hard look at your expenses, cutting any costs possible, and funnel those savings into your cash account. Consolidate any high-interest debt with a personal loan to lower payments, which will help with your cash flow needs.
• Research new expenses: What new expenses are on your horizon? A new house to accommodate a growing family? Consider expenses in the immediate future, such as diapers, but also look further ahead toward college savings. Understand the details of your health coverage and estimate any new out-of-pocket expenses. Check out how to access any free or low-cost resources available as well, such as subsidized childcare.
• Learn about tax breaks: Talk to financial professionals and learn about the Child and Dependent Care Credit, Health Savings Accounts and Dependent Care Flexible Savings Accounts. All are available to help young families minimize taxes, keeping more money in your pocket during your parental leave and after.
• Build your budget: Once you have completed your research and planning, you are ready to build a new household budget! A CFP® professional can help you pull together all of the pieces and face parental leave with financial confidence.

It’s never too early to start budgeting and saving for your growing family. Preparedness and flexibility are the keys to success. While preparing for parental leave can be challenging, stay calm and know that your planning will pay huge dividends for your family’s future. Find a CFP® professional today to help you get started.