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Top 5 Money Mistakes New Parents Make
Author: Kirsten Weiss
Search the Internet for: “cost to raise a child in America,” and you’ll find some terrifying results – ranging from $150,000 to over $300,000. It’s enough to make one swear off procreating, which is why those who actually do want to continue the species often don’t dwell on the numbers.
The good news is that the hard financial truths don’t have to be that hard. Here are five simple pitfalls to avoid:
- Failure to plan. “Essentially, the baby comes and it’s ‘drop everything, let’s take care of the baby,’” says Financial Advisor, Robert Avey of SGC Financial. “Usually, we’ll get the call to see someone well after they’ve had the kid and they have nothing in place. Now they want to do all sorts of things for themselves and their kids, but they don’t have a plan, priorities, or resources.” The longer you wait to get things in place, the fewer options you will have.
- Delaying saving for college. If you had a baby today and planned to send her to a four-year, public, in-state college, at a five percent inflation rate, the estimated cost would be $201,108, according to the College Board’s savings calculator. So save early, and save often.
- Prioritizing college before retirement. “There are many more ways to get money for college than to get money for retirement,” warns Avey. Paying for your child’s education is a great gift, but not if the cost is dependency upon them in your golden years. “I’d rather see people save for retirement and, if they want to, to help their kids pay their student loans along the way.”
- Inadequate life insurance: Deep in our hearts, we don’t really believe we’ll die. But our mortality rate is 100 percent - death happens. When it happens in an untimely fashion, families can be devastated both emotionally and financially. The basic calculation for how much insurance to buy is simple: debt + mortgage + income to pay the surviving spouse to stay home until the youngest child reaches 18 + college. Keep in mind, once the mortgage is paid off the cost of living for the surviving spouse drops dramatically. The most contentious of these variables can be enabling the spouse to stay at home with the kids, rather than work. But this is where you really have to think about what would happen if you or your spouse died. If one of you walked out the door and didn’t come home, how would the kids feel seeing that surviving parent walk out the door to work every morning? Assuming your parents will just step in is similarly unfair – they have retirement dreams too.
- No disability insurance. A good friend of mine had recently had a child and dutifully went to buy additional life insurance. The salesman suggested disability insurance but my friend was young and healthy, and turned it down. Within the year he’d been diagnosed with Multiple sclerosis (MS). His future ability to support his family (and himself) preys upon his mind and he’s told me that not buying disability insurance when he’d had the chance is his biggest regret.
These common mistakes are avoidable. In fact, they really boil down to one mistake: failure to plan. Avoid that trap, and the rest should fall into place.
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