New parents are usually happy, terrified, excited and exhausted all at the same time. They are focused on meeting the needs of this tiny person who is entirely dependent on them, and financial matters can often become overlooked. Here are some common financial mistakes new parents make.
1. Overspending on baby items
It’s easy to overspend on baby items, and it’s easy to become so wrapped up in what you think you need for your baby, and not what you actually need. Buying things for the baby is fun, and everything is so cute that before you know it you’ve gone totally over budget. Shopping at online baby stores means that new parents have to put more thought into their purchases, and find it much easier to stick to their budget.
2. Saving on Life Insurance
Many people don’t think about life insurance, or think that the policy provided through their employer is enough. However, this probably won’t cover all the financial provisions of your dependents if anything should happen to you. A good rule of thumb is to have a policy that amounts to five times your earnings, plus any debt, plus costs of college tuition.
You should also look for a term policy that will last until your baby has finished college, and has the option to convert into a variable life policy, or a whole life policy. If one parent is a stay at home parent, then they should also take out a life insurance policy.
3. Forgetting about disability insurance
New parents can neglect to make sure that they have enough, or any disability insurance. Employer sponsored disability insurance may be enough to cover any financial needs in case of an accident, but you might need supplemental cover. If you do decide you need supplemental cover, you should look for a policy that will cover your household expenses and maintain your current standard of living.
4. Buying a Life Insurance Policy for the baby
Some insurers try to convince new parents that they need to take out a life insurance policy for the baby. Honestly, you don’t. Life insurance is a great idea when the death of the policyholder would cause financial problems. And while some insurers will tell you that the policy will cover any medical conditions that your child might develop as they grow, it’s unlikely that it would be needed, and if it was, it probably wouldn’t provide enough cover.
5. Neglecting to add the baby to their health insurance
When you have a new baby, so many things fall by the wayside, and many new parents forget to do so many things, like adding the baby to their health insurance. If your health insurance is through your employer, you’ll have 30 days to report the birth. If your plan is through HealthCare.gov, or a state marketplace, you have 30 to 60 days depending on your state. If your health insurance is directly with an insurer, you should contact them to add your baby.
6. Forgetting about retirement savings
New parents can easily forget about their retirement savings, but you shouldn’t. The other expenses that raising a child incurs can be solved with other methods like a loan, or a college scholarship. There are no options like that for retirement. Even stay at home parents can prepare for retirement by saving cash into an IRA.
7. Forgetting about college savings
While there are options for funding your child’s education, like loans and scholarships, new parents should still think about a college saving fund. You should look for tax free savings options, although some of these come with conditions like that the funds must be used for education.
8. Buying ‘must have’ items
Many new parents think that once they have had a new baby, they need a bigger car, or a bigger house. These kinds of purchases are very costly, and most of the time completely unnecessary. The only thing that buying a bigger house, or car accomplishes is adding to the household debt.
9. Forgetting about emergency savings
New parents are focused on taking care of their baby, and this means that things like the household budget and savings are forgotten about. This means that if there’s an emergency, like urgent home repairs, there’s no money to pay for it. You should find an app to track your finances, and build up some savings in case there is an emergency.
10. Not having a will
As a new parent, you probably don’t want to think about death, but if anything should happen to you, and you don’t have a will, there’s no provision for your child. Writing your will now will make things much less complicated and less stressful in the event that something does happen. Your will can set out your clear wishes, rather than assuming that someone will know what you want.
If you can avoid these mistakes, and take steps now, then you can have some security in your own financial future, and the financial future of your child.