May 16, 2024

Little girl resting ear on pregnant mom’s belly

You’ve read all the baby books, from what to wear to what to eat. But have you considered how to plan financially for your unpaid parental leave? How do you budget for being away from your job for weeks or even months while managing all the expenses that come with a new baby?

The best way to prepare financially for a baby is to plan ahead. Follow these four steps to get your finances in order before your bundle of joy arrives.

1. Know what parental leave is available to you

Often referred to generally as “maternity leave” or “paternity leave,” parental leave is the time parents or caregivers take off work to care for children or a new baby.

The federal Family and Medical Leave Act (FMLA) requires some larger employers and public agencies to provide job-protected, unpaid leave for qualified family or medical reasons. The act entitles eligible employees 12 workweeks of unpaid leave per year, along with other possible benefits. There are several requirements to be eligible, so it is a good idea to check the details.

In addition, your state and employer might offer additional benefits beyond the federal requirements.1  Be sure to look into and ask your employer about any additional benefits where you work.

Find out if your parental leave is paid or unpaid

Because federal law does not require that parental leave be paid, it is vital that you research your company’s parental leave policies and investigate the laws in your state  to know the financial impact. If you are eligible, you may receive full or partially paid family leave for a period of time.  

If you work remotely, the rules may get more complicated.2 You will want to clarify what you’re entitled to, especially if your company is based in one state, but you live in another.

Understanding what benefits are available to you will help you plan financially for your parental leave. Going weeks or months with no income or reduced income might put a strain on any budget. Having a plan in place will may allow you more stress-free quality time with your new child. 

2. Estimate out-of-pocket medical costs

Even with health insurance, having a baby is expensive. Costs associated with pregnancy, childbirth, and postnatal care could reach as high as $20,000. Insurance coverage can reduce that amount, but childbirth still may cost thousands of dollars.3 To prepare, you will want to understand the details of your health coverage and your birth plan so you can project any out-of-pocket costs for delivery.

Keep in mind the potential costs if your delivery has complications or your baby needs special care. If you are planning to use a doula or a midwife, or choose an alternative birthing center, it’s equally important to know if your insurance covers your ideal birth plan.

Whether you’re an expectant parent through adoption or pregnancy, the time to check your plan’s coverage is before the child arrives. Get the exact breakdown of the expected costs. These might include not just delivery, but also possible post-delivery expenses, like pediatric care and feeding support.4

3. Calculate how much you should save for parental leave

To figure out how much to save for your parental leave, combine your projected costs for delivery and post-delivery care before your child arrives. Add the amount of regular living expenses you’ll have for the duration of your leave.

Next, you’ll want to calculate the amount of income that you can expect during this time. Remember to adjust this amount by subtracting any loss of wages you might incur.

Once you’ve considered all the factors, calculate the total amount to save for parental leave by comparing your costs with your income. Remember that unexpected expenses may come at the least convenient time. Having parental leave savings, plus an emergency fund that covers three to six months of living expenses, is ideal.

You might benefit from creating a dedicated bank account for your parental savings. To that end, you might consider setting up an automatic transfer directly from your checking account to your new savings account. If you don’t see the money sitting in your checking account, you’re may be less likely to think of it as money you have available and more likely to build the savings needed to afford parental leave.

4. Get your current finances in order

When you start planning financially for a baby, you may feel overwhelmed. Don’t worry. There are a few strategies that may help you reach that savings goal more quickly:

Consolidate high-interest debt

Before taking on the added expense of a child and time off work, make sure you have a plan in place for paying off debt. Consider consolidating higher-interest loans with a personal loan. It might help you save money on interest, which you could put towards your parental leave savings.

Look into a maternity leave loan

A maternity leave loan, otherwise known as a family leave loan, is a personal loan that can help you cover any unreimbursed expenses involved in caring for your new child. The lump sum you’d receive can help manage your finances by covering bigger expenses, so you don’t have to add to your revolving credit card debt. It may also simplify your budget because you’ll have one set regular monthly payment you can plan for. (Once you’re a parent, you’ll appreciate predictability even more.)

Be sure to include your child in your budget

The expenses of a new child add up fast. In addition to the medical costs of prenatal care and delivery, you might need to furnish a nursery, purchase a car seat and stroller, and more. You may also have recurring expenses like diapers, formula, clothing, books, and toys. Additionally, as you return to work, you might need to budget for daycare and babysitting.

Be sure to build these new expenses into your overall household budget. Then decide if you need to adjust your current spending to fit your budget. You may need to cut back in some areas to accommodate the costs of your growing family. For example, in the first few months with a newborn you might choose to reduce your entertainment and travel budgets, freeing up funds for diapers and baby supplies.

Take advantage of your network and resources

There’s no better time to ask for help from friends and family than after the arrival of a new child. Even if they’re unable to chip in financially, they may be able to volunteer time for childcare when you return to work. They also may have hand-me-down clothes, linens, and other childcare essentials.

Many retailers offer welcome kits for new parents that provide free samples and money-saving coupons for baby supplies. Government programs like WIC and SNAP* may also be able to help with food and other costs during an unpaid parental leave, depending on your income.

Even if you have friends with children, you might also consider joining a local parent group on social media or speaking to faith-based organizations in your area. Check out the local community groups and nonprofit organizations in your neighborhood to see if they offer additional support and resources for new parents.

Boost your income

One way to supercharge your savings for your parental leave is by giving yourself an income boost with additional part-time work or more hours at your existing job. That might be difficult after the baby arrives, so it’s best to plan ahead.

You may also want to consider building up an additional income stream so you have the option to earn extra money while on leave, which may help lessen the financial strain.

Get started early

One of the best things you can do to financially prepare for your parental leave is to budget for baby as early as possible. The better you understand the financial implications of having a baby or bringing a new child into your home, the sooner you’ll be able to take action. And the earlier you start saving, the more time you have to build your cash cushion.

No matter how well-prepared you are, you may still face unexpected baby-related expenses. A personal loan might help you bridge the gap. 

With our personal loan calculator, you can enter an estimated loan amount and your credit score to find out how Discover® Personal Loans may help you prepare for your parental leave.

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*WIC refers to Special Supplemental Nutrition Program for Women, Infants, and Children. SNAP refers to Special Nutrition Assistance Program.