Raising children is an expensive endeavor. Aside from the year your child starts college, one of the most expensive times is immediately after birth. Not only are there hospital bills and necessary recovery time for the birthing parent, but in an ideal world, most parents would like to spend additional time bonding with their child during the first year together.
That's hard to do when you live in a country without federally mandated paid maternity or parental leave. But it's not impossible. Here are some tips for saving money for parental leave, so you can enjoy bonding with your baby during that first year.
Step 1: Rejig Your Budget
The first step is figuring out how much money you'll need to cover essential, fixed expenses during your time off, such as housing, groceries, insurance and more. You can do this by creating a budget.
You can make your budget "bare bones" by shaving off variable expenses—like subscription services or dining out—so you can put more money toward your upcoming parental leave. Once the baby arrives, you'll also need to factor in extra expenses like diapers, formula and medical bills.
Tip: If the birth wasn't planned and you're panicking about the delivery room bill, check out our healthcare financing options.
Step 2: Review Employer Parental Leave Benefits
Your employer may offer paid parental leave benefits. While many companies don't offer these benefits, paid parental leave has become more common in recent years.1 If your company offers parental leave, it may offer it in any of the following formats:
- • Leave for you as the birthing parent only
- • Leave for you as the non-birthing parent only
- • Leave for both the birthing parent and non-birthing parent, regardless of which one is the employee
You can strategize when each parent wants to take their leave. You might both choose to take it at the same time. Or, you might choose to alternate to avoid childcare costs for the first several months of your child's life—which tends to be the most expensive age to enroll in childcare services.2
Tip: While you're at it, research your company's dependent care benefits. There may be reimbursements or tax-advantaged flexible spending accounts (FSAs) available for daycare. Your employer may also provide backup day care on-site for those times when your regular childcare provider is unavailable.
Step 3: Explore State Disability Insurance Options
Some states have short-term disability programs, with pregnancy and childbirth included as a disability. Here are the states that currently offer short-term disability insurance programs:
If your state does run a program, you're likely already paying into it through payroll deductions. If you're self-employed, some states will allow you to participate in the short-term disability program, but you'll have to start paying into it for a set amount of time before the benefits kick in.
You will need a doctor's note to qualify for these programs, but generally speaking, even an uncomplicated childbirth is enough for anyone to qualify as disabled for some weeks.
Step 4: Consider Purchasing a Short-term Disability Policy
When you're preparing for parental leave, a short-term disability insurance policy serves as a financial cushion. This insurance kicks in if you can't work due to something like childbirth, providing a chunk of your paycheck for a set time. It means less financial stress during a crucial time, letting you focus on what matters—your growing family.
If your state doesn't have a short-term disability insurance program, you can purchase a plan privately. Sometimes you can purchase a policy through your employer. Read the fine print, though. Usually, you can't get pregnancy covered if you're already expecting.3 There may even be a waiting period after you purchase the policy before pregnancy benefits kick in.4
Step 5: Check If Paid Family Leave is an Option
The next step is to check if your state offers a paid family leave program. Some states provide financial support to individuals taking time off for family-related reasons, including childbirth, adoption or caring for a newborn. These state-sponsored initiatives vary in terms of eligibility criteria, benefit duration and the percentage of salary replaced.
However, if a program is available in your state, it could allow you to tap into additional financial resources during your time away from work. Here are the states/districts that currently offer some type of paid family leave option:
Four other states (Colorado, Delaware, Maryland and Oregon) have passed paid family leave laws, but they haven't yet been implemented.5
Step 6: Don't Forget About Paid Time Off and Vacation Days
Even if your employer and state don't offer paid parental leave, you may have accrued some paid time off (PTO) or paid vacation days. Depending on your employer's policies, you may be able to use these days in addition to any other paid leave options available to you.
Step 7: Check Your Benefits Against the FMLA
The Family and Medical Leave Act (FMLA) gives you job protection at the federal level. It does not entitle you to any pay while you're away, but it does say that your employer can't fire you for claiming up to 12 weeks of FMLA time off per year. The birth, adoption or fostering of a child counts as a qualifying event.6
If you work for a large employer, have worked there for at least a year and work an average of 25+ hours per week, FMLA leave is something you may be able to claim if you don't have paid options available to you.6
Whether you're taking FMLA leave, claiming a private or state short-term disability benefit, taking PTO or parental leave, or any combination of these, you'll want to take a close look at your local laws and employer policies. These programs can affect each other. For example, in some states, your employer's parental leave benefits will reduce your state-run parental leave benefits, while in other states, there is no reduction—you can claim them both.
Step 8: Crunch the Final Numbers
Considering how all your benefits combine and overlap, add up how much you expect to receive in paid leave each month. Then, add in any money you've socked away into savings. Does this number meet or exceed your budget?
If not, write down how much more you'll need to save. This is your parental leave goal. Take the absolute maximum amount you can save per month, then divide your total number by the maximum monthly savings. This will tell you how many more months you need to save to afford parental leave.
For example, if you need to save $6,000 and can afford to save a maximum of $300 per month, it would take 20 months to reach your goal. As you work toward that goal, save your money in a high yield savings account so it grows as quickly as possible, thanks to the competitive interest rate. One smart strategy is to set up an automatic savings plan so you never miss a contribution and stay on track to reach your goal.
Step 9: Keep Yourself on a Budget During Leave
When you have a lot of savings built up, you want to ensure it lasts for your entire leave. Let's say you've saved 200% of your monthly income. During the first month of leave, you receive 50% of your normal pay from a state program. You would distribute 50% of your monthly pay from your savings to your checking account that month. The next month, your math looks the same, so you'd transfer another 50% of your monthly income.
But during the final month of your leave, your paid leave runs out. You decide to claim unpaid FMLA leave in accordance with your state laws. This final month, you would transfer the remaining 100% of your monthly earnings to your checking account to get you through the final four weeks.
Step 10: Explore Alternative Work Arrangements
Your employer may not be willing to give you a year of paid parental leave, but if you anticipate running out of money before you're ready to go back full-time, you could explore part-time schedules or even full-time flexible schedules. If your employer is amenable, this could allow you to avoid childcare for the first year if you're partnered and your schedules complement each other.
The Last Word
It takes a lot of research and creativity, but some Americans can cobble together paid parental leave for themselves when they know where to look. Regardless of how much paid leave is available via your employer and state, starting on your savings journey now can make parental leave an achievable goal for the future.
Brynne Conroy is a personal finance writer based in Pennsylvania. Her book, The Feminist Financial Handbook, was an Amazon #1 New Release across multiple categories and has been cited in various academic texts. She was the co-host of the award-winning podcast Mom Autism Money, and has been awarded a PEN America grant for the body of her work in the field.
READ MORE: Tips for Saving Money in Your Baby's First Year
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