Caring for a baby is expensive, and planning for the financial demands of having a child can be complicated. We sat down with Jeannie Jackson, financial representative with Guardian and Strategies for Wealth, on the set of a Scary Mommy video shoot to talk about all things maternity leave and how to start saving before you welcome a new member to your family.
What is the FMLA?
The Family and Medical Leave Act (FMLA) was passed into law in 1993. It allows eligible employees to take up to 12 work weeks of unpaid leave during a 12-month period to care for a new child, care for an ill family member, or for a family member who is recovering from an illness. The lack of employment policies to accommodate working parents was sometimes forcing them to choose between job security and parenting, so the understanding that it’s very important for the development of children and the family unit that parents be able to participate in their early child rearing was one of the reasons this Act was passed.
Who qualifies for FMLA?
At a high level, employees must have worked for an employer for at least 12 months, worked at least 1250 hours over the past 12 months, and worked for an employer with at least 50 employees to be eligible for FMLA coverage. Additionally, there may be certain state, municipality, or other regulations depending on where you live/work, so I’d recommend doing some research and making sure you’re familiar with your local laws.
There’s a lot to prepare for before you have a baby. How can you prepare financially before your maternity leave even starts?
While I always encourage saving as soon as possible – even before you get married, if you’re planning to get married – as soon as you find out you’re pregnant, create a maternity leave fund. Build it as if it's an emergency fund. Create a budget and see where you can save. If you can, I would say start saving from the time you start your first job. Get into the habit of paying yourself first by saving into a couple of different buckets, both long-term and short-term.
How much money should you set aside for your maternity leave?
That’s a very individual decision and depends on many factors. For example, if you need $3,000 a month in net income to pay your bills and you'll have $1,750 coming in, you'll need $1,250 to make up the difference.
If you're taking a three-month maternity leave, that amounts to $3,750 additional savings. If you take six months, you'll need to set aside $7,500. Also, determine if you have access to paid leave, paid time off and/or disability benefits from your employer that they may offer.
If you just found out you’re pregnant, when should you tell your boss?
Again, this is a very personal decision. Are there any work conditions that will warrant you telling your employer very early of your pregnancy? For example, are you experiencing severe morning sickness or having other medical issues that may impact your work? Importantly, I'd suggest after the first trimester/ early 2nd trimester to get a better understanding of your employer benefits and policies regarding leave time. Also, remember to enjoy your time being pregnant.
Moms need to think of everything. Should I have a contingency plan if I decide not to go back at work?
Yes. Deciding when, or if, you should go back to work can be a tough decision. It can be easy to get overwhelmed with factors to consider: What's best for you? What’s best for the baby? Can you afford it? Will this alter my career path? Make sure to seriously consider all your options in advance. For more information on planning for childcare, read my colleague Rosanna Guardavaccaro’s interview.
What’s the biggest mistake moms-to-be make going into maternity leave?
Every mom has a unique experience with maternity leave and how they choose to spend it. There's no rule book. In my opinion, it's too short and can be very stressful. Things to stay are away from are: mommy guilt; not giving your partner the night shift; not asking for more help; staying indoors too often; and over promising what you’ll do during maternity leave.
How can FSAs help?
FSA’s are Flexible Spending Accounts. They’re special financial accounts you put money into that you use to pay for certain out-of-pocket health care costs, coinsurance, medical, dental, and dependent care. This can help lower taxable income, because you don’t pay tax on the money you put into the account. They can help pay for out of pocket expenses such as breastfeeding supplies (breast pads, nipple guards, nursing bras, breast pump) prenatal vitamins, storage bottles, support pillows, and pain relief eye masks, to name just a few items. Keep in mind, if you don't use the money you set aside, you lose it.
What’s Short Term Disability insurance?
This is insurance coverage you usually get through your workplace that pays a percentage of your salary if you become temporarily disabled, and that includes pregnancy. Short term disability insurance usually pays between 50-60 % of salary for a period of time, which can range from 11 weeks to 2 years, but the time you receive payment will depend on your medical condition. For example, pregnancy is usually six to eight weeks depending on the type of delivery. It can vary if you have other medical conditions. Employees can sometimes contribute to have a portion of their benefit tax free.
What if I had a c-section or my recovery takes longer than expected? Will I be covered longer? Benefits differ per plan, so make sure to talk to your healthcare team and/or your benefits administrator to make sure you know the limitations or restrictions you may have due to a c-section.
What if you don’t get maternity leave at all? What’s a mom to do?
If you’re able to plan in advance, start saving as soon as possible, and consider using PTO and vacation days. Look to family and friends for logistical support or financial help. Consider working part time or see if your employer has an option to work from home.
If you don’t get maternity leave through your job, is there any other type of leave you can apply for through the state? How does this impact your finances?
It really depends on the state where you live. Some states have mandated disability programs, some offer additional benefits to paid family leave, and others are looking at adding programs in the future. Individual research is important to make sure you know what rules your state has in place.
Many moms have no choice but to go back to work right after they have their baby. And that means they’ll need childcare. On average how much should one expect to pay for childcare?
Of course, that depends on where you live, but according to the National Association of Child Care, the average cost of center-based daycare in the US can range from $3,582 to $18,773 a year, which translates to $300 - $1,564 a month. According to a 2019 care.com cost of care survey, the US government defines affordable care as no more than 7% of family income, but 70% of families report paying more than 10%. And 40% report paying more than 15%. Insights from 4000 parents nationwide showed the intense squeeze childcare is putting on the family wallet. The details of how they make it work tell a more complicated story. Families are saving less and having fewer children.
What’s the best piece of advice you’d give a mom-to-be regarding money?
The love of having a child is like nothing else in the entire world. And it’s important to plan ahead. Do a financial wellness check before you have your baby: create a will, look into life insurance, and continue to contribute to your own retirement.