How To Save For Parental Leave
After six years of side hustling, I resigned last summer to go full-time as an entrepreneur. Shortly after, we found out we were expecting our first child. Plot twist! Our dream of starting a family was finally coming true; however, we had a lot to figure out financially. Wanting to take three months off to be with our newborn, how would we fund maternity leave as new entrepreneurs? How would we plan for maternity leave? As I cuddle with my son while writing this, here’s how I budgeted for maternity leave and how to save for parental leave.
Press play to listen to the podcast episode where I share my pregnancy announcement and the maternity leave checklist for entrepreneurs I created to prepare for the arrival of my son. Listen on your favorite podcast player here.
This blog post is made possible by CIT Bank. All thoughts shared are my own.
How To Prepare Financially For Maternity Leave As An Entrepreneur
By the time I quit my job, I was already a few months pregnant, and the thought of having to save for maternity leave was daunting. As I figured out my new routine, I wondered how much I should save for parental leave. In other words, how would I cover my salary during maternity leave?
When working for an employer, you are eligible for partly or fully-funded benefits like health insurance and paid time off. But as an entrepreneur, you are responsible for everything – covering any leave you take, including parental leave. If this is something you want, you will have to save for it.
It also pained me knowing I walked away from 500+ hours of paid sick leave, which could have covered two months of paid leave with my baby. Nevertheless, corporate was in my rearview, and I was up for the challenge of figuring it out.
Like how I saved for big purchases or how I saved for my wedding, we started with our budget and created a savings goal.
1. Review household expenses
Jot down all your bills to determine how much you would have to cover per month if you took time off.
Having children is a major life event, so this was a great opportunity to review your finances, income, and expenses with your significant other. Even if one parent wanted to take time off and the other planned to continue working, this is still a good exercise.
Having an honest discussion about your finances means everyone has a say (which is very important), and hopefully, you’ll both be on the same page about what happens next.
Since you’re running a business, don’t forget to calculate your monthly business expenses as well.
2. Determine Length of Parental Leave
Knowing we wanted to take three months off, we multiplied our monthly household expenses by three – this became our new savings goal.
For example, if we spent $5,000 per month and wanted to take three months of parental leave, we would need to save $15,000. This $15,000 would cover all our bills, so we wouldn’t have to work during that time.
But how realistic would it be to save this amount of money from now until giving birth?
3. Set Savings Goal
If we had seven months until giving birth, we would divide $15,000 by seven (maybe six to be conservative), leaving us with a savings goal of $2,150 per month. Remember, the less time you have until your due date, the more you would have to save to reach your goal.
Next, is saving this amount of money per month feasible? If not, consider reducing your household expenses so you have less to save. Or increase your income to meet the demands of this short-term savings goal.
So, how much to budget for maternity leave?
Here’s the formula:
Step 1: Monthly household expenses x (# of months for parental leave) = Total amount needed for leave
Step 2: Total amount needed for leave / (# of months to save before giving birth*) = Parental leave savings goal per month
*Note: Your due date is only an estimate. You may give birth before or after your due date, and giving birth ahead of time may impact your ability to save.
4. Open New Bank Account
Whether you plan to transfer funds into your maternity leave fund every week or once a month, keep track of your maternity leave savings separately by opening a new bank account. With a maternity leave fund, you’ll know how much you have saved up and how much you have left to go.
Learn why you need multiple bank accounts and how it can help you better organize your finances.
Help your savings grow even faster by opening a Savings Connect savings account from CIT Bank, which at 1.35% APY1 is 16X the national savings account average2. Member FDIC3. Learn more here.
5. Assess Your Progress
At the end of each month, review how much you were able to transfer to your parental leave fund and assess your savings timeline. If you are saving at a rate that matches your original timeline, continue as is. However, if you fall behind, adjust to meet your goals or set new, more manageable goals. You may have to cut your maternity leave short or plan to increase your revenue.
6. Be Ready For Anything When Preparing For Parental Leave
Although I planned to take three months of maternity leave, I took five months.
I share this because even with neatly laid out plans, life happens. You may have to shorten or extend your leave depending on your situation.
Our baby arrived early, which cut my savings timeline short. Luckily during my pregnancy, I prioritized passive income streams, which meant we had money coming in to supplement our savings.
Knowing what I know now, my advice is to pick your maternity leave start date before your expected due date, just in case you have to walk away from work sooner.
Also, during your pregnancy, you may want to take on additional work to increase your revenue, launch new offers or raise your rates.
Overall, budgeting and saving for maternity leave gifted us the chance to be present for our son without worrying about our finances. That’s what I call financial freedom.
What steps are you taking to fund parental leave? How did you save for maternity leave? Let me know in the comments below.
Read Next: Entrepreneur Couple Save For 3 Months of Self-Funded Parental Leave
Listen Next: Being Adaptable Through Pregnancy and Full-Time Entrepreneurship
*This article contains affiliate links in which The Thought Card may be compensated for.
1. APY — Annual Percentage Yield is accurate as of June 30, 2022. Interest Rates for the Savings Connect Account are variable and may change at any time without notice. The minimum to open a Savings Connect account is $100. Fees could reduce earnings on the account. A Qualifying eChecking account must be opened concurrently with the Savings Connect account and the ownership of both accounts must be identical. The minimum to open an eChecking account is $100. Both accounts must be funded within 30 days of account opening.
2. Based on comparison to the national average Annual Percentage Yield (APY) on savings accounts as published in the FDIC Weekly National Rates and Rate Caps, accurate as of June 21, 2022.
3. First-Citizens Bank & Trust Company and its CIT Bank and OneWest Bank divisions are the same FDIC-Insured Institution. Deposits held under each name are not separately insured but are combined to determine whether a depositor has exceeded the $250,000 federal insurance deposit limit, per depositor for each ownership category. For purposes of calculating aggregate deposits, you should include deposits held in First-Citizens Bank & Trust Company, OneWest Bank and CIT Bank.
Danielle Desir Corbett paid off $63,000 of student loan debt in 4 years, bought a house at 27, and has traveled to 27 countries, including her favorites, Iceland, China, and Bermuda. Go here to learn Danielle’s incredible story, from struggling financially and in debt to finding creative ways to earn more and live on her terms. Listen to The Thought Card Podcast, where Danielle shares how you can creatively travel more and build wealth regardless of your current financial situation. Reach out to Danielle by contacting: thethoughtcard (at) gmail (dot) com.
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