5 Budget Blunders for New Parents

From the May 2007 copy of Parents:

Common oversights by new parents:

Blunder #1: Not having the right life insurance. A good rule of thumb is to have 7-10 times the amount of gross income, when you have young children. If you're a stay at home mom, you STILL need this coverage. Term or whole life?!? well that's up to you, just make sure that if something happens to you or your spouse, your entire life won't come crashing down.

Other mistakes: Getting coverage for a baby... They aren't covered for the first few weeks and the main purpose of life insurance is to replace lost income.

Not having disability insurance. This is right up there with health insurance. Not something we WANT, but definitely is a NEED. You don't need it til it's too late, and then it's too late to get it. Think ahead.

Blunder #2: Putting retirement savings on hold. "I'll save for retirement late.... right now we need to buy this...." WRONG!!! Even if it's just $10 a paycheck, PUT MONEY INTO YOUR RETIREMENT. Then as you get a raise in your income, add a little more. Look into Dave Ramsey. He has a GREAT way of looking at things. Always pay YOURSELF first.

Blunder #3: Passing up eligible tax breaks. Don't let Uncle Sam have your money interest-free! Adjust your w-4 at your workplace and get more back per paycheck, then have THAT extra money go into a special account. Savings acct, money market account, IRA, ROTH, Christmas Club account, SOMEWHERE that you can't get it out of!

If you have children, look into the Child Tax Credit, and if you have childcare, look into the Dependent Care Tax Credit. Better yet, if your employee offers Flexible Spending for Dependent Care, look into that. Depending on your situation, this can equate to about 25% off of your daycare expenses! (You MUST spend the money or lose it though... so plan this carefully)

Blunder #4: Failing to make a will. The number ONE reason parents need a will is so YOU and not the JUDGE determine who will care for your children if you're gone. You must also specify how you want your money distributed, including your life insurance. Without a trust, your children may have access to your entire estate at 18, which can end up being too much, too soon.

Blunder #5: Getting sloppy about spending. Stay on top of your ins and outs. How much money is coming INTO the house, and how much is going OUT of the house. Consider it babyproofing your finances. (Again... check out www.daveramsey.com)

ESPECIALLY make sure you're spending less that you're bringing in. No matter HOW much you make, the temptation will be there to spend money on impulse items. To give your children the things you didn't have available to you as a child. Sometimes less is more.

Once you've gone into debt, it's SO much harder to get the reins back under control. Many new moms cut back on work hours, or families are tempted to get a loan from 401k's or refinance homes, or to load up credit cards. They think it's temporary, but it ends up being a nightmare.