You have made the decision: You are going to have a baby. Or maybe you did not make the decision, but you are going to have a baby nonetheless. Baby showers, potential schools, preparing the nursery, prepping for three hours of sleep, and endless discussions about the philosophy of raising your child ensue.
Everything seems to be discussed and on the way towards resolution. Oops, forgot something. Finances. Well, you have plenty of time to discuss in the future, right? Nope. Without deep, anticipatory discussions and planning you may be walking headlong into any number of common financial mistakes new parents often make.
To guide your financial discussions, we have prepared an abridged listing of financial mistakes.
These discussions may not be as pleasurable as choosing nursery colors, but they will help you avoid putting your long-term financial security at risk.
Five Common Financial Mistakes New Parents Make
Lack of Emergency Savings
Unexpected bills pop up. The pop up even more frequently when there is a baby involved. Therefore, it is important to have three-to-six months of salary socked away. Emergency funds aren’t just for new parents, they are foundational for all people looking to be financially responsible.
Lack of Life Insurance
Few want to talk about it, but permanent life insurance for children is a responsible investment. Here are four reasons to consider it.
- It may Keep Your Family Out of Major Debt
- It Provides a Financial Safety Net
Permanent life insurance such as whole life accumulates cash value at a guaranteed rate while the policy is in effect.
- Coverage for Children Will Never Be More Affordable
The younger a child is when coverage starts, the lower the rate.
- Life Insurance Protects Insurability
Whole life coverage protects children against an unexpected accident or illness, currently and in the future.
Lack of Disability Insurance
Who is the main bread winner in the house? What would happen if this income lifeline suddenly stopped due to a long-term disability? Are you financially prepared?
Without an income, you would quickly burn through your savings. The worry over your new baby would become overwhelming.
One of the worst parts is that disability can last a long time. Over half of all personal bankruptcies and mortgage foreclosures are a consequence of disability.
Long-term disability insurance is essentially income replacement. It can help you make ends meet when you’re unable to work without needing to completely drain your savings.
Ignoring Retirement Savings
It is easy to postpone or avoid retirement savings. This is one of the worst financial mistakes new parents can make. The reason? Other expenses created by raising a child can be resolved through a loan or a scholarship.
However, retirement does not offer “other” options such as a loan. Retirement needs to be a priority even in the leanest of times. It prepares your family for a sound financial future.
Ignoring College Savings
College funding does have options such as loans and scholarships. However, new parents should still consider a college savings fund. There are tax-free savings options, although some come with conditions. You may never save enough to pay for all tuition, you would help your child avoid a mountain of debt that requires years to decades to pay off.
Planning for the Sake of Your Family
Planning can be intimidating and stressful, but your future self will be happy you planned. Parenting is challenging, but it becomes even more challenging without a financial plan.
Think beyond today for the sake of your loved ones.