As first time parents, your day consists mostly of caring for your newborn and trying to catch up on sleep whenever you can, therefore financial issues aren’t given as much thought as they should be. As a result, many parents put their family’s long-term financial security at risk by making quick decisions or avoiding issues altogether. With a bit of education and planning you can avoid making the most common financial mistakes.
Not having a will or an up-to-date will
Many new parents assume that they don’t need a will because they don’t have a large estate or much in the way of assets, but a will is essential in designating guardianship. If something were to happen to you or your spouse, wouldn’t you want to make sure that your children were cared for by the people that you wanted them to be cared for—and not who the court appoints?
Not having enough life insurance
Would the other parent be able to afford all of the family debts, maintain the house, raise a child/children and put them through college? Life insurance through a job is rarely enough coverage and if you leave that job then you are no longer covered. Even if one parent doesn’t have an income, they still need life insurance because the cost of childcare and housework would be extremely expensive for the family if that parent were no longer there to do it.
Not having adequate disability insurance
Have a policy that would enable you to cover your expenses and maintain your standard of living if you were unable to work.
Not putting priority on your retirement
It is important to save for your retirement even before saving for your children’s college tuition. You will not be able to receive any financial aid or loans for retirement like your child can for college. Plus, it would be worse for your child if they had to figure out a way to support you during your retirement.
Delaying saving for college
There is a number of college saving vehicles offered to help you start saving as soon as possible and allow you to deduct from your bank account on a monthly basis. While you may not save enough to cover the entire cost of tuition, you can help your children avoid serious debt that would take years to pay off. College saving vehicles make great gifts for grandparents to give a child!
Overlooking tax benefits for parents
There are many tax benefits for parents such as the dependent-care tax credit and the child tax credit. It’s important that you have your taxes done by a professional who can help you get these additional savings if you qualify for them.
Failing to plan is the biggest mistake you can make
By planning accordingly you could avoid all of the above mistakes. The longer you wait to have everything in place, the fewer options you will have.
Editorial provided by Kate Domack of Westco Financial Group in Stratford, CT. (PD0112)