Bringing home a new baby changes your priorities — personally, professionally and, of course, financially. Between the late-night feedings, the pediatrician visits and the struggle to keep up with laundry, it’s easy to feel overwhelmed, and money may be the furthest thing from your mind. That said, failing to plan for the future can have devastating effects, especially as your family grows.
Here’s a look at three money mistakes you don’t want to make as a new parent.
Ignoring the need to save. As a first-time parent, you’ll have plenty of new expenses that previously weren’t part of your budget, such as diapers, formula and childcare. Even so, it’s important to continue saving. “When kids come in the picture, your finances will change a lot,” says Wendy Weaver, a certified financial planner at FBB Capital Partners in Bethesda, Maryland. “There are unexpected emergencies that happen, and lots of times new parents don’t have an emergency fund. Stay disciplined, and if you have credit card debt, continue to pay that down. Saving should be a top priority, even if it’s just a little bit.”
Assuming your partner shares your financial priorities. You may have discussed money with your partner when you first moved in together or got married. But adding a tiny human to your household completely changes the equation. You may think you and your spouse agree on decisions like what type of diapers to buy, whether you as parents should be expected to pay for college and whether siblings should share a room or each have their own. Then again, you might be surprised by your partner’s expectations, say Bethany and Scott Palmer, co-authors of “The Five Money Conversations to Have with Your Kids at Every Age and Stage” (to be published Dec. 30, 2014). “Start thinking about college, which always fuels interesting conversations with mom and dad,” Scott says. “Big-picture things like that are important to discuss.” Bethany agrees, adding, “Assuming is the worst thing that you can do when it comes to understanding what and how to raise your child. We see that it absolutely kill relationships.”
Skipping the tough stuff. Having a baby is a joyous occasion, so many new parents understandably avoid thinking about or discussing their own mortality. But once you bring a baby home, the stakes are much higher if you or your spouse become disabled or worse. That’s why Weaver says parents should think about buying life insurance and disability insurance. “For most new families, your income is one of your greatest assets,” she says. “Buying disability insurance may feel really expensive, but it’s important.” Also think about your estate planning needs, especially naming a guardian in the event of your untimely deaths. “Young parents get tripped up on ‘Who are we going to ask?’ ” Weaver says. “You want to make sure that your spouse and your kids are taken care of in a way that’s the least painful as possible.” As they say, an ounce of prevention is worth a pound of cure.
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