Posted by After a ~13 month maternity leave after Baby LJ #1, I returned to full-time work at the end of February 2024. Shortly thereafter, I found out we were expecting Baby LJ#2 by the end of 2024!
Life Doesn’t Care about Your Plans
When my first maternity leave ended in February of this year, I returned to my employer in a different role. I truly loved my new job. I got to join a new business line and contribute by having a proverbial “seat at the table”.
My ideal plan was to stay in the role for two years. If the stars align, I’d go on a second maternity leave at that time. Then return from leave into another job within the business line.
By working two years, we would also get our financial plans back on track. We paused most of our non-employer matched savings due to the first maternity leave. We had excess contribution room in both of our RRSPs and TFSAs, which was a first in a long time.
Of course, life didn’t care about my perfectly laid plans.
We were planning to grow our family, so a second baby isn’t unexpected, but the speed of it certainly was! Especially as I was getting older and considered a “geriatric age” for pregnancy, a second baby is no guarantee. It also took some time for us to be pregnant with #1 and so we were pleasantly surprised with how quickly #2 came.
But therein lies a (financial) problem: my due date was in November 2024, which means I would be taking two maternity leaves in the same calendar year. Yikes!
It just means we will need to adjust our financial plans (yet again).
Cash Shortfall in Maternity Leave
Similar to Baby LJ#1, we had to get financially prepared for another maternity leave.
One major benefit is my employer provides a 17-week corporate top-up where I would get fully paid my salary during that period.
However, at the end of the 17-week period, I would only receive the government’s parental leave employment insurance benefits. With approximately $2,000 after-tax payment per month plus Mr. LJ’s salary, we would still have a significant cashflow shortfall every month. Our monthly expenses are ~$13,000 (or ~$11,000 if we forgo the ~$2,000 optional mortgage payments we make due to higher interest rates).
We needed to build a baby cash fund that could cover the ~$60,000 cash shortfall during my maternity leave. While we had an existing emergency fund already, we excluded all of it from the baby cash fund. Our emergency fund was our “break glass in case of emergency” last resort and we didn’t want to count on it for my leave.
Build Baby LJ #2 Cash Fund
To build the baby cash fund, we swept excess cash into a high-interest savings account from:
- Our personal tax refunds. These were originally earmarked for RRSP and TFSA contributions. But it was more important to keep this in liquid cash than investments;
- Our company bonuses. My 2022-23 bonus was withheld by my employer during my first maternity leave. The withhed bonus was immediately paid out when I returned to work;
- Suspending our discretionary savings beyond our employer-funded or matched savings programs; and
- Any side-gig income or extra cash. Mr. LJ works infrequently as an ad-hoc merchandiser and sells off unwanted items around the house.
By diverting money towards the baby fund, we will not be meeting two out of five of our 2024 financial goals: maxing out both our RRSPs and TFSAs. (We could have put some cash into our TFSAs to shelter some interest income from taxes. But it wasn’t worth the effort as we were moving cash to chase higher promotional interest rates at different institutions.)
Ultimately, we exceeded our baby fund savings target by ~$10,000. We will likely hang onto this excess as (yet another) cash cushion. Closer to the end of the maternity leave, we will redeploy any excess back into savings.
Peace of Mind
Even as I write this post, the cash fund we’ve saved seems very conservative given all the cushions that’s been built in. However, if Mr. LJ were to lose his job at the beginning of my maternity leave, we would be in big trouble! The Canadian job market is rather sluggish and with the headwinds due to the anticipated US policies (e.g., tariffs), the job market doesn’t have positive signs of turning around quickly.
A large cash cushion provides peace of mind to me during a time when we should focus on the baby and our family. Sure, we are missing out on some market gains by not investing in this red-hot stock market (our portfolios were +5% just in the month of November). But not having to worry about the ups and downs of the market while on one income is worth the missed gains.