I have lived most of my life as a fairly frugal person, and that is something that has really helped me out as I’ve raised 6 kids on a single salary for the past 20 years. Parenting itself has only rarely been easy, and I distinctly remember those early days when I had a lot of young kids (5 under 10, anyone?) and money was tight. So allow me to share 6 ideas on how you can avoid some of the common financial mistakes that trip up some new parents.
Buying every cute baby gadget that you see (new)
This is definitely the debt mistake that I see the most. As I look at the baby (and wedding!) registries of friends of mine who are going through this for the first time, almost every time I turn to my wife and say “These guys have no idea what is going on”.
Sure – life, money, and parenting have changed somewhat since I was first a new parent in the year 2000. But what has not changed is that marketers and advertisers are experts at convincing new parents that they simply MUST have this new gadget. It’s simply not true – millions of babies all around the world turn out just fine with not much more than a mother’s love, and yours will too. Talk to some of the “veteran” parents in your life and see what they recommend. When you do get a handle on what items you need, set a budget like you would for anything else in your life. While there are some things (car seats!) that you absolutely should not buy used, many baby items you can often pick up at a steep discount from those who are done with the baby stage in life.
Skimping on your emergency fund
Before kids, you probably had a pretty good handle on your finances and felt pretty comfortable in knowing where your money would go each week or month.
After kids, it can all go out the window if you’re not prepared. In my 20 years of parenting, I can not tell you the vast number of different ways my kids have sprung last-minute financial “emergencies” on me. From braces to broken bones to uniforms for school, dance, karate, and sports, there’s no shortage of surprise ways for you to spend money, so just be ready for it.
All of this is to say – make sure that you set up an emergency fund (and if you have one already, you probably want to bump it up). You don’t want to put yourself one ER visit away from financial difficulties.
Focusing too much on the new baby
I get it – having a new baby is an amazing experience and one that turns your life upside-down. If you’re still pregnant, haven’t had the baby yet, and are reading articles like these to prepare yourself then first of all – good for you! Secondly – you have no idea how much this is going to rock your world and unfortunately, there is no real way to adequately prepare for all of it. If you’re a new parent, then you’re already in the midst of it and know exactly what I’m talking about.
Babies can be demanding creatures and they will absolutely take as much of your time, money and energy as you can give (and then some!). But it is my strong opinion that the absolute best thing that you can do for your children is to take care of your spouse/partner. Don’t forget to take the time to strengthen your marriage or relationship, especially if you are not the primary caregiver. This may not be a traditional “debt” mistake but I can guarantee that if you don’t take care of your relationship, it will cost you in the long run.
Not re-evaluating your life insurance situation
Another financial mistake new parents make is not re-evaluating how much life insurance they have. Before kids, if the worst were to happen and you were to pass away, I’m sure all of the other adults in your life would be emotionally devastated. But as adults, they would also (hopefully) be in a position to eventually pick up the pieces and provide for themselves on their own.
With kids though, that all changes. You want to make sure that if someone were to pass away that the rest of the family is able to still be in a healthy financial situation. This was extra true in my personal case since my wife is a stay-at-home mom. We wanted to make sure that if I were to die, that she would be left in a position where she wouldn’t have to worry about money (on top of being left a single mother to 6 kids!) and that she would be able to live her life in roughly the same manner as she has been. She always tells me that I’m worth more to her alive than dead but sometimes I’m not so sure… 🙂
So talk to a trusted life insurance professional and make sure that adequate insurance is in your budget.
Not starting to save for college (early)
College and higher education is expensive and only getting more expensive. And just like saving for retirement, the earlier you start the easier it will be. Not only will you get to enjoy the power of compounding interest, getting yourself in the HABIT of saving for college is something else that only gets more difficult the longer you put it off.
Saving TOO much for college
The flip side of that coin is that while saving for college is important, it’s also important that you make sure that college savings are only a PART of your overall financial strategy. If you don’t save enough for college, there are ways (scholarships, grants, financial aid and yes, even loans) that your children can still pay for college. But if you put all of your savings into college for your kids to the detriment of your own retirement, there are NOT a ton of options for you if you run out of money in your retirement, other than moving in with your (college-educated) kids. It’s definitely important that you save for college, but make sure that it’s a PART of a healthy financial plan.