The arrival of a baby can drastically change a family’s financial status. One parent could be a low, middle or high-income earner or not earning at all, but no matter what, both are now are expected to start paying for new expenditures thus putting strain on a budget. To most new parents, getting settled with a new baby only means concentrating on what makes the baby happy without really taking into consideration the mess they may be getting into with their bills. Financial issues are rarely discussed before the arrival of the baby and as such, numerous issues crop up.
This may result in most parents putting their family’s long term financial security at risk. Despite the fact that most new parents are prone to making financial mistakes, with prior planning and foresight, some can be avoided. Such financial mistakes include 20 we’ve listed here today:
Buying too much baby stuff
The buying of baby “stuff” starts while the mother is still expecting and it continues for what appears to be an eternity. While it’s completely normal to be excited, try and hold off on going nuts too early. New parents end up spending a lot of money on excessive baby items, many of which end up being thrown away or never even used. When it comes to being ready for a baby, a more carefully planned budget for only the essentials a good idea. Draw out a list of what you need only, followed by things that are “nice to have’s,” followed by the crazy stuff. Do NOT exceed your budgets.
Buying everything new
New parents tend to think that their babies will remain infants for eternity. They tend to buy bundles of clothing yet their kinds end up not using all of them because, guess what, they grow! New parents should also consider getting some items in second hand stores or consider hand me downs from relatives. Most infant clothing is worn for such a short period of time, new parents should save their money for bigger items that are more important and cost more money.
Absence of a will
This may not cross the minds of most young parents as most parents tend to think of death when it comes to will creation. That’s completely normal but when a child is born, creating a will is extremely important. Without a will that names the legal guardians and financial responsibilities if the parents suddenly pass on, the children may end up being taken care of by anybody appointed by the court, and may end up losing the basic privileges no matter how much one had invested. Also, it’s wise to plan an estate and finances so there are zero questions as to who gets what in the event of death.
Lack of enough life insurance
Many new parents lack a life insurance policy that covers the new expenses that come hand in hand with parenthood. This may include child health care, education, and other costs that just “pop up” all the time. While one parent may have life insurance with their employer, this might not be enough. Getting something like a term policy or whole life insurance policy can add to the numerical figure necessary to provide the family with money should one parent pass away.
Ignoring some important documents
When you are in the hospital, pay attention to those government forms that are supposed to be filled, as well as any other important documentation. Why? Because if you don’t, all of a sudden you might get a charge from the IRS and have no clue what it’s for. It’s for having a kid, that’s what! These documents may include the application for birth certificate or social security numbers. Most new parents tend to avoid these forms only to spend money later when these documents are needed when they could have been obtained for free. In some instances, ignoring such forms can result in penalties.
Ignoring education savings
The simple way to remember saving for your child’s education is to start day 1. If you don’t, 18 years will go by, your kid will want to go to college, and there will be no money to pay for it. The longer you wait, the less you’ll save and the more you’ll have to try and put away month after month. For as little as $100 a month you can save a considerable sum tax free and it will grow into a sizeable nest egg for your child’s future. Look into child savings programs like 529 plans, and even potential grants from the government.
Ignoring their own financial needs
A wide range of new parents tend to forget their own financial needs. The arrival of a baby puts people very much in the present that they fail to remember thinking long term. Often times, parents fail to invest or plan for their retirement as a result of new children. Never forget to plan. Living in the now is fine but investing for tomorrow is also essential. Too many times, new parents put investing and financial planning off, that it’s too late to recover and retirement gets further and further way. Remember to tend to your future as soon as possible or you will pay for it later.
Buying life insurance for their baby
It’s not necessary. Life insurance is necessary to purchase for the parents but not for the child. You do not need to take a life insurance policy out in the event your child dies. The financial settlement at the end will always be too small and it’s not worth the monthly premium. Most parents tend to buy a policy for their children simply because insurance agents convince them to do so. Having one insurance policy for each parent should cover the bases. It’s rare for a child to develop serious complications later in life, and paying for insurance is usually a waste if other investments are being tended to.
Lack of adequate disability insurance
Most new parents don’t think about the chance that they will physically be unable to work at some point in their lives. Before it’s too late, dad hurts his back and can’t work at the factory anymore. This is where disability comes in. If you don’t have it with a current employer then you can get a plan independently at a low cost. While you clearly don’t want to injure yourself, that risk is always there, especially in families where members are in a field that requires manual labor.
Lack of clear financial goals
As much as investing for the future is important, so is having a clear goal is what you need. Many times people prime themselves up to invest but never set a clear goal and their anticipation foils in the dust. Get a plan, set it, and hope to forget it. Once you have a plan set that’s when you can figure out what it’ll cost to get there. And remember, never spend money that will interfere with your financial plan. That’s key. Extravagant and unnecessary spending kills any financial plan.
Poor estate planning
This is along the same lines of life insurance and setting up wills. In conjunction with a will you can also set up an estate to make sure that your kids get as much as they possibly can and minimize taxes upon death. With a clear picture of how a home and investments will be dispersed, Uncle Sam can’t get in the way and take all the money you’ve earned over the years and want to leave to your children. Talk to a lawyer and make sure your estate planning is in order so they your kids aren’t left with nothing because of some legal mistake you made early on.
Buying things in a hurry
While many parents tend to buy everything brand new because they are in such a rush from having a new baby, they don’t realize they can take their time. Yes, buy the essentials like baby medicine and diapers but calm down about the other stuff. You don’t need a crib in two seconds. You don’t need gigantic toys and swings right off the bat. You can wait, and you should wait, and you should also look for deals, get coupons, and realize there’s tons of free stuff out there for new parents. Remember a little thing called samples at the doctor’s office!
Not taking advantage of family and friends
Friends, relatives and even co-wokers are usually willing to help at one point or another and that can save you big bucks early on. Maybe it’s a hand me down outfit or better yet, baby sitting when it’s needed. These costs can seriously add up when all you had to do in the first place was ask. Early on, parents want to take on the responsibility themselves as they feel they “need” to. Nothing could be more naive. Remember the saying, “it takes a village.” If people are willing to help, take the help. Both parties end up being satisfied. Not to mention you’ll save thousands on things you never expected to spend money on had you not asked for help in the first place.
Renovating the baby’s room
Many new parents spend a chunk of their finances trying to renovate the baby’s room. While this is geared towards making the baby’s life more comfortable, remember something: the baby has no clue what’s going on and if it’s going to damage your bank account, hold off. It’s one thing if the room is in shambles and is a danger to the child. It’s another if the room is completely fine the way it is. You can wait a few years and decorate the room when they are five.
Constant worry leads to bad financial decisions
Having a new child creates constant worry. It’s that simple. A cough could mean disaster. That spot you see on your baby freaks you out. So instead of calming down and listening to a doctor you go online and fine 100 potential diseases your kid has. Then what do you do? Run to the store and buy 6000 items before your child is even diagnosed. 99 times out of 100 things are always better than they seem. Calm down, call a doctor, and listen!
While this is more rare, some people actually quit their jobs entirely at the onset of a new baby. Usually it’s in the mother’s case. If a mom was employed before she should make sure she’ll be able to be employed again in the event the family can’t afford expenses on one income. Always stay close with your employer and be extremely familiar with what their maternity plans are. There are many cases where new mothers are let go because they violated a company’s maternity plan. If you want to quit your job, find a new one first, then quit.
Watch out for big debt with credit cards
Many parents who are under pressure to get their baby every possible thing they think new baby needs, they turn to credit. It’s a common and huge mistake. If you have been reading this article then take the advice you’ve read so far and do anything you can to avoid getting into credit card debt. No financial plan or savings plan can exist when credit card debt and the high interest rate it carries are out there. A family should do whatever it can to be debt free when their child enters the world.
Lack of enough emergency savings
Emergency funds may not have been so crucial before you became a parent but you may realize as time goes by, unexpected bills can and will pop up. Having something set aside for these events is crucial. Bottom line, if you have a good 3-6 months of salary put away (even when you’re employed) then you should be able to handle any unforeseen expenses. Having an emergency fund isn’t just for new parents. It’s for anyone who has to pay for anything at all, ever.
Not changing their lifestyle
Making lifestyle changes is inevitable as a parent but many don’t embrace the change. They still try and “do it all.” Dad thinks he can still party with the boys every night and mommy thinks that aerobics classes can still be done daily. At the beginning a new baby hits you like a ton of bricks. Adapt and do what’s necessary. Once you figure things out you can slowly create a lifestyle that resembles one you’ll approve of. But know this, you’re old life is completely gone. Accept it and adjust.