As a new parent, life can be pretty tough. Trying to take care of baby on 3 hours sleep, seeing every innocent object as a potential danger hazard and struggling to keep up with the never-ending mountain of chores, can leave very little mind-space for anything else – especially finances!
It’s easy to let finances slip when you have so many other things to worry about. However, if they do, eventually it could lead to potentially serious and stressful problems. The good news is, there are ways you can get on top of your finances early on to prevent them from spiraling out of control. First, it helps to be aware of the mistakes you could be making.
Here, we’ll look at the 10 financial mistakes many new parents make and how they can be avoided.
1. Buying Exclusively New Baby Supplies
Having a baby is exciting and you obviously want to give them the best of everything. For many parents, that means buying exclusively new baby supplies. The trouble is, babies need a LOT of stuff. From nursery equipment to toys, clothes and a never-ending supply of diapers; the list is seemingly endless. So, if you commit to only buying shiny new things, it’s going to quickly break the bank.
Now, don’t get me wrong, there’s some things you should always buy new. However, it’s more important to be wise about your spending. If you are buying new things for example, make sure you invest in high-quality items so they’ll last a longer period of time. It’s also better to shop at online baby stores as that minimizes the chance you’ll buy things on impulse. With online shopping, you have to think about it more, so you’ll make much wiser spending decisions.
2. Failing To Accommodate A Drop In Income
If you’re taking maternity or paternity leave, it’s very unlikely it will cover your usual salary 100%. That means, there’s going to be a period of time your income drops. Many parents fail to take this into consideration, quickly finding themselves in financial hardships.
The trouble is, your income drops, but your living costs increase due to all of the baby supplies you’re going to need. So, it’s really important to get on top of the situation before it becomes a problem.
One of the best ways to avoid getting into financial trouble is to look at where you can make cut backs. Could you cut your grocery bill down? What about little luxuries such as meals out? Avoid buying too many large items and make adjustments before the baby gets here so you are used to it when they finally arrive.
3. Not Having Adequate Insurance
When you’ve just had a baby, the last thing you’re going to be thinking about is dying (hopefully!) It’s not a nice thing to have to think about, but it is important to make sure you invest in good life insurance. You now have a little person who depends on you, so what would happen if the worst were to happen?
Taking out life insurance gives you a peace of mind that your little one will be provided for. So, shop around and compare the different plans on offer. It might increase your monthly spending a little, but without it, if something does happen, baby and your partner could end up in serious financial difficulties.
If you already have a sizeable amount of liqud assets, life insurance may not be necessary. Still, it’s important to think about these scenarios, however unpleasant they are.
4. Failing To Take Advantage Of Benefits
Many parents have no idea what benefits they’re entitled to. For example, many employer’s offer a range of great benefits which could benefit new parents. Check to see whether you’re entitled to a flexible spending account, subsidized childcare or a dependent care account. At the very least, you may be entitled to discounts at various stores.
Also, research which tax benefits you may be entitled to. Seeking advice and taking advantage of any benefits available to you can drastically improve your financial situation.
5. Not Saving For Your Child’s Education Early Enough
Many countries will have you unique plans in place to help you save for your child’s education well in advance, with many offering tax advantages such as the United States’ 529 plan. The cost of education can be notoriously high, so the earlier you start to save, the better.
Some countries handle it a little bit differently. With Canada’s Registered Education Saving’s Plan for example, the government actually matches the annual contributions made into the account by 20%. There is a maximum limit of $2,500, but this can make a massive amount of difference when it comes time to pay for your child’s education. The earlier you start to save through the plan, the more interest it will generate for you and baby.
6. Not Spending Enough On Date Night
Having a baby is hard, and often, it can really take its toll on your relationship. This makes date nights extremely important, not just for your relationship, but for baby too. The happier the parents, the happier the child. Plus, date night gives you a chance to take a little time out for you.
You don’t have to do anything overly extravagant. A movie night, a picnic or a simple walk along the beach will all do wonders for your wellbeing. Don’t have a partner? Host a date night for yourself! Just taking some time out to focus on you will do you the world of good.
Try to aim to have date night once a week if you can.
7. Failing To Save For Emergencies
As well as saving for long-term events such as college, retirement and life insurance, it’s perhaps even more important to save for those unexpected emergencies. If something were to happen, would you have the funds available to cover it? If not, it’s important to start saving for those “just in case” moments.
Now, the trouble is, many new parents simply don’t have spare cash to save each month, even after making cut-backs to regular spending. If this sounds like your situation, the best thing to do is to get friends and family to give you money, rather than gifts, on special occasions.
If you’re really not comfortable asking for money, you could always ask for gift cards instead. Ideally, you’ll want to ask for MasterCard gift cards, but even ones dedicated to specific stores can save you money that can be added to an emergency savings fund.
8. Falling For “Must-Have” Purchases
It’s easy to be sucked into “must-have” purchases. These include things such as a bigger car, a fully-equipped nursery and even a bigger house. Of course, there are situations where a bigger house may be needed, but the truth is, even a one-bed apartment is initially enough for the majority of new parents.
All cars will comfortably fit one child seat in the back. So, it’s only really parents with more than one child who may need to upgrade to bigger cars and houses. As for the nursery, most equipment is useful to have, but not essential. So, don’t fall into the trap of thinking you absolutely need to upgrade – the truth is you probably don’t need to.
9. Paying For Everything With Plastic
OK, so credit cards can be a really useful thing to have in emergencies. However, it can be really tempting to start using them to pay for everything once baby comes along. They’re convenient, especially if you’re making lots of trips to the grocery store for baby supplies. However, they can also cause you to spend more.
When you don’t have to think about what you’re spending right away, it’s easy to rack up a pretty high bill. So, if you want to avoid getting into financial trouble, it’s worth paying for small items with cash. Save the credit cards for larger items you can’t easily afford.
10. Living Beyond Your Means
You want your child to have the best of everything, it’s understandable. However, living beyond your means isn’t only going to cause you a massive amount of stress, but it’s also going to set a bad example to your child.
If you want them to grow up to be financially stable, you need to show them how to do that. If they see you frequently using your credit card, or spending more than you can afford, they’re going to grow up to do the same. It might not feel like something you need to worry about right now, but the earlier you can get into a habit of being more financially responsible, the easier it will be to teach your child about money when they’re old enough.
Overall, it’s easy to make the above financial mistakes; most new parents do. However, taking the time now to plan ahead and know exactly how to avoid the most common financial mistakes is going to help you and your family enormously.