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Financial Mistakes You Shouldn’t Make When You Have Young Children
by Josh Wilson | Personal Finance Blogger
Becoming a parent for the first time is an exciting — and overwhelming — time. The practical aspects of preparing for a new addition can be daunting.
This is particularly true when you combine the emotional ups and downs of saying goodbye to one chapter of your life with the advent of an entirely new chapter. In the process, many new parents forget a crucial aspect of preparing for their little ones: financial planning.
While it may not seem like an obvious item on the new to-do list, having a game plan for your money is critical to ensure that you stay on track with your financial goals. Read on to learn more about how you can avoid some common financial mistakes that many new parents make when they welcome a child into their family.
Failing to Budget Before a Little One Arrives
Having a baby means that you will be spending a lot more money. From clothes to baby gear to diapers to child care, your bundle of joy will add quite a few items to your monthly budget. Make sure that well before he or she arrives, you have accounted for these expenses so that you are not scrambling to cover these additional costs after the fact. Preparing ahead can make the transition much more smooth — which is even more important when you are adjusting to life as a new parent.
Overspending on Baby and Kid Items
It is easy to fall into the trap of wanting only the best for your baby and child. While some people can afford high-end items, most people simply can’t — and they generally aren’t necessary. Babies and kids truly don’t need much other than a place to sleep, some clothes, a car seat or stroller, and some books and toys. There is no need to buy every baby item in the store or to buy everything brand new. Look for used items, or ask family and friends for hand-me-downs. Your budget will thank you!
Buying on Credit
If you haven’t budgeted for your baby or child, or have gotten into the habit of justifying purchases because they’re “for the baby,” you may find yourself falling deep into credit card debt. If it’s bad enough, you may have no way to dig yourself out of the hole. Especially if you’re a newcomer to credit cards. Avoid spending more on credit than you can pay off each month. If you find yourself carrying a balance, set up a plan to pay off your debt — and stop using your cards excessively.
Ignoring Retirement Savings
It may be tempting to stop funding your retirement while you are preparing yourself for little one, or to reduce your contributions in favor of other expenses, like a college savings account. Remember that retirement savings should be your top priority. You can take out a loan to pay for college, but there are no loans to pay for retirement. Keep putting as much money as you can into your retirement savings each month.
Not Taking Advantage of Employer and Tax Benefits
Many employers offer benefits for employees with children, such as dependent care accounts or subsidized child care. Check with your human resources department to make sure that you are taking full advantage of every possible benefit offered by your employer. Then talk to your accountant to ensure that you are getting all tax advantages as a new parent.
Forgetting to Buy the Right Insurance Products
Now that you are a parent, you are responsible for the well-being of another person. You can take steps to protect your child financially by getting insurance. Life insurance for yourself and your partner should be a priority, along with disability insurance for each parent that works. However, there is no need to buy life insurance for your child. He or she does not have an income to protect or replace. And the money that you would spend on insurance would be better invested elsewhere such as in a college savings account.
Waiting to Save for College
If you can afford to save for your kid’s college education, it makes sense to start saving as early as possible. The earlier you start saving, the longer that the money will have a chance to grow. And the more that your child will have available for college when he or she is ready in the future.
Josh recently got into the personal finance game when he decided to start up Family Faith Finance. His goal is to introduce a unique perspective on personal finance while offering solid, unbiased advice.