Top 5 Money Mistakes New Parents Make
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.
Keep in mind, once the mortgage is paid off the cost of living for the surviving spouse drops dramatically.
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.