Worried About How Parental Leave Will Hit Your Wallet? Here's a Cheat Sheet

When you’re expecting a baby, it’s essential (and fun) to budget for all the new clothes, feeding supplies, decor, and overall gear you’ll need for your new family member. But you also need to think about yourself and the time you’ll take to be with your baby. 

If you’re employed, there are a lot of questions you’ll need to ask about parental leave before your baby is born. Things like, does your company even offer paid parental leave? If so, how much time do you get, how will you get your benefits, and will you try to take more time? If your employer does not offer benefits, then you’ll have to ask, how much time can you afford to take off?

Whatever your parental leave benefit situation is, you probably need to financially prepare, and we’re here to help guide you through the process. We spoke with financial and parental leave experts to collect the best pieces of advice and create this primer on how to financially prep for parental leave.

First, understand your benefits before you go on leave

The U.S. is only one of eight countries in the world (and the only high-income country) that doesn’t mandate paid leave for new mothers. There are currently 13 states plus Washington D.C. that mandate paid family leave for their residents, but for the majority of Americans, employers are able to choose if they want to provide workers with this benefit. This means just about everyone’s situation will be different.

In most scenarios, “Every new parent is going to qualify for different benefits depending on where they live, where they work, and how long they have been working for their current employer,” explains Linzay Davis, parental leave consultant and founder and CEO of The Park Consulting. So what can you do to 1. figure out what benefits you qualify for and 2. maximize those benefits?

• Study your employee handbook: “The best way to understand what your employer offers and how to take advantage of the full benefits is to read the employee handbook,” explains Setu Shah, financial coach and founder/CEO of Financial Doula. “The handbook will clearly stipulate how much leave you’ll get, the amount of pay, when you can take it, if you can combine leave with PTO, how/if short term disability insurance is an option, and more. Speaking with your HR representative as well as connecting with other colleagues that have taken leave in the past will also help you understand your leave benefits.”

• Sign up for short-term disability insurance (SDI) before becoming pregnant: If you’re the birthing parent and your employer offers SDI, you have to make sure you’re paying into it before conceiving, because pregnancy can be considered a preexisting condition and you may be denied. According to Shah, “SDI usually pays between 40-60% of pay for six weeks if vaginal delivery or eight weeks if C-section.” She recommends contacting your insurance carrier to understand exactly how and when you’ll be able to access SDI benefits.

• Research your state’s family leave policy: If you live in a state with mandatory paid family leave, visit its website to familiarize yourself with the requirements and benefits offered since they vary by state. Shah also suggests to “ask others in your network that have navigated the process before, and check with your employer on how state leave policies interact with employer-specific benefits.”

Determine how long you’ll be on leave

Employers are required to give eligible workers a minimum of 12 weeks unpaid leave per the Family Medical Care Act (FMLA), but it’s not exactly the ideal length of time for everyone.

“Most people believe 12 weeks is the magic amount of time new parents need for parental leave, and after 12 weeks they can return to work like nothing’s happened. This couldn't be further from the truth. Twelve weeks is not rooted in data or research. It is an arbitrary amount of time that is the framework of FMLA, but it is not nearly enough.”

Even with FMLA, recent data shows that the average leave taken by a birthing parent in the U.S. is just 10 weeks while non-birthing parents only take a week off, and that’s because new parents simply can’t afford to take more time off if it’s unpaid. The reality is you won’t know how much time you truly need away from work until your baby is born, and it’s best to be financially prepared for the longest leave your company is willing to give you.

Figure out how much you need to set aside

According to the U.S. Bureau of Labor Statistics, only 27% of civilian workers have access to paid family leave, while 90% are offered unpaid leave. If you fall under the latter category, you may be able to use PTO and sick time to continue receiving a paycheck for at least part of your leave. For those with little or no benefits, figuring out how much money you need to set aside before you go on leave is crucial.

A good first step is creating a basic budget (there are apps for that!) to visualize your finances as they currently stand and make a game plan for when you’ll be without an income. Next, Shah suggests asking yourself the following questions:

• What will our total monthly income be when I’m on leave?

• How much will our expenses go up?

• Will we have to dip into savings?

• If we do have to pull from savings, do we have enough to cover the lost income?

• How long will I be on leave?

• How will my finances be impacted after leave?

• Will I need to start saving more now to have enough savings when I’m on leave?

After considering these questions, compare your current monthly cash flow with your projected cash flow and run the numbers to determine if your household will still be making enough to get by without your income or if you should start budgeting now. “It can be tricky getting the numbers right, especially if you are unsure how your expenses will change while on leave,” Shah admits. “Getting help from a financial coach could help ensure you get as close as possible to the exact numbers.”

Create a “Baby Budget”

After you’ve determined how much money you’ll need to save before going on parental leave, make a budgeting plan and start adjusting right away by cutting back on current expenses and setting aside more for savings. 

“The hardest part is always making the adjustments and sticking to them, but doing so will make a world of difference come time for parental leave,” Shah notes. “There are many ways to actually set aside the money but the most recommended way is to create a separate sinking fund account (call it ‘Baby Fund’) with your bank that is solely dedicated to the savings needed for parental leave and the first year of your baby’s life.” 

“You can transfer savings from a separate account into the Baby Fund and/or set up automatic transfers from your checking account until your baby is born,” she explains. “Once you have enough saved up in your Baby Fund, do not pull from the account until your baby arrives. This method is a great way to set money aside because it allows the dollars to stay separate from your regular savings and provides clarity on whether you have enough saved up for parental leave.”

Prepare for unexpected costs

It’s no secret that raising a child is an expensive endeavor, and there will undoubtedly be unexpected costs like additional medical bills (did you know your baby gets their own hospital bill in addition to yours?) or postpartum support services. But there are some other financial surprises that are better to be aware of before it’s too late.

“If you receive state-sponsored leave and are additionally paid by another source (like your employer or short-term disability insurance) make sure you don’t receive more than 100% of your income,” points out Davis. “If you do, the state will find out and send you a bill to repay them.”

In extreme circumstances, you may decide to leave your job entirely if you realize you need more time with your baby and your employer denies your request. This type of situation can get tricky from a financial standpoint. “If you quit your job your employer might legally be able to bill you for the health insurance premiums they paid for you while you were on leave,” says Davis.

So how can you prepare? “The best way to prepare for these financial surprises is to leave a healthy cushion in your savings for possible unexpected costs,” Shah advises. “Saving an additional 20-30% more than what you think you’ll need will help protect against these costs and reduce any financial stress that comes with these surprises.”

Consider speaking to a parental leave consultant or financial coach

If you’ve read through all of this and feel completely overwhelmed, we don’t blame you—it’s a lot of information, and financial prep coupled with baby prep is a stressful combination. Thankfully, there are services you can use to help navigate parental leave before you take it, and most of them work remotely so a quick Google search is all you need to do to start researching what might be the best fit for your family.

• Parental leave consultants: Agencies like The Park Consulting specialize in advocating for parents-to-be and can help maximize your benefits and navigate the legal pieces that may come into play when preparing for and taking parental leave. “We have your best interest in mind and can help you with every aspect of your parental leave from deciding when to tell your boss you’re pregnant, to applying for benefits, to advocating for yourself at work when HR is providing you with incorrect information,” Davis explains.

• Financial coaches: A financial coach can help create your budget, organize your finances and make sure you’re asking the right questions and taking the necessary financial steps before taking leave. Agencies like Shah’s Financial Doula specialize in family budgeting and may have more knowledge about how to prepare for this specific part of your life. 

If hiring a consultant is out of your budget but you’d still like to gain insight from an expert, many agencies offer free information on their social media platforms and websites. 

“Parental leave is one of the most rewarding yet trying times in life. You are recovering from giving birth, learning how to breastfeed, navigating lack of sleep, and eager to spend time with your baby,” Shah says. “Financial challenges should be the least of your worries, and yet, it is one of the major reasons for postpartum depression and anxiety in America. Financially preparing for parental leave could substantially reduce the chances of perinatal mood disorders, provide options, and give your family peace of mind and a secure future.”