New parents have a lot to think about, but these tips can help them make better financial decisions.
Having a child is an exciting and exhausting experience. The feeling of holding your newborn in your arms cannot be described in words. Along with this exhilarating feeling, though, comes sleep deprivation, hectic schedules and the determination to provide nothing but the best for your precious little one.
Even with the best intentions, it is very easy to lose track of finances or make unwise decisions with money. Here are some of the top money mistakes new parents make:
Not having life insurance (or skimping on insurance): We do not want to think about dying, especially after a bundle of joy just entered our lives, but we need to make sure the little one is provided for after us. A childless couple may need little or no life insurance, but having a child changes everything. If you do not have life insurance yet, please start shopping for a policy.
Ignoring disability insurance: According to the U.S. Social Security Administration, one in four of today’s 20-year-olds will become disabled before they retire. What protection do you have for your biggest asset — your ability to earn income?
Buying life insurance for the baby: I never knew people buy life insurance for babies until I started receiving at least one brochure a week from companies selling whole life insurance. Some even kept calling me with different tactics, either to scare me into thinking about any potential illnesses my baby could have in the future that would make her ineligible for insurance (if I don’t buy something right now) or to make me believe I am building her a solid financial foundation with the investment portion of the whole life insurance product.
I can easily see how these arguments would work on parents who want to do everything possible to give their kids an advantage in life; however, neither of these arguments are valid reasons to buy insurance for your baby. With the recent changes in the health insurance law, the chances of not getting insurance due to an illness are very slim. Even if that were the case, the insurance that is provided by these baby insurance products are too small to really make a difference. And regarding the second argument of providing a solid financial foundation, you will be better off by putting that amount in a college savings account and teaching your kids about finances. How much income does your baby bring in? Zero dollars? That is exactly how much insurance you should get for the baby.
Over-spending on baby items: The Internet is filled with lists of items you need for the new baby. In my experience, the best way to go about this is to buy the absolute basics — a place for the baby to sleep, a few Onesies (or sleep-and-plays if you are having a winter baby), diapers, car seat, a few bottles if formula feeding. For the rest, purchase other items as and when you feel the need after the baby arrives. You might find you never miss anything.