The Worst Financial Mistakes Young Parents Make
Every loving mother and father, no matter how young they are, aspires to be excellent parents and provide adequately for their children. They want their kids to grow up to be fruitful and happy. However, ensuring your kids’ success takes more than just wishful thinking, it takes some sturdy financial planning. Even when you have the best of intentions, it can be easy to avoid the planning process to take care of what you need to today. However, by avoiding major financial mistakes, you can dramatically improve the quality of both yours and your children’s lives. As a young parent, the whole process of having a baby can be incredibly stressful, as you do not know if you are doing things right. By avoiding these financial mistakes, you are well on your way to being an excellent parent to your child.
Not Having an Emergency Fund
Do you have enough money saved up to pay all your bills plus other financial expenses in the case that an emergency occurs or that you lose your job? If you do not, then it should be your top priority to put money into a savings account and save money. Put at least $25 of your paycheck if not more into a savings account through direct deposit. You should attempt to build a cushion that’s worth at least three months of pay. This will give you time to search for a new job or pay for any unexpected medical crisis or repairs.
Ignoring Your Retirement Savings
There are too many parents out there that will only think about money for their kids’ college education and ignore the money needed to save adequately for retirement. However, it is recommended that you do the opposite. Instead, allocate your funds towards your golden years through a 401(k), as you can always borrow for your children’s tuition, but not so easily for your retirement.
Open a Savings Account For Your Kids
When your child starts receiving checks for their college education, you may think the best way to keep the money is in a custodial savings account for your child. However, this is not a good option simply because you are not able to access the money in case you need it, and the earnings on the account are fully taxable. Additionally, the balance counts towards your kid’s financial aid eligibility. Instead, it is best to put the money into a 529 college-savings plan. This money will grow without tax as long as you put it towards college expenses. On top of this, some states will deduct it from your taxes.
Splurging on Expensive Baby Items
Upon walking into a baby store, you’ll discover a plethora of baby items such as carriers, strollers, and clothes. However, that baby gear is not cheap. In fact, it is estimated that the average stroller costs $400. Moreover, the average cost of purchasing baby furniture is upwards of $1,100. However, instead of buying everything brand new, you can save as much as 80 percent on your baby items by asking family and friends for their gently used baby gear, as well as scour through Craigslist. Keep in mind that you do not need the brand new model and the most expensive price on most of your baby stuff.
Not Purchasing Enough Life Insurance
One study done by New York Life Insurance found that on average, US citizens only purchase enough life insurance to cover three years of their paycheck. However, it is recommended that you have at least 14 years covered. If you only buy enough coverage for the first couple of years then what will occur after the life insurance ends? Unfortunately, what will likely happen is that the surviving parent will have to work grueling hours under stress to make ends meet without the deceased parent’s paycheck. Without adequate funding in your savings, your children’s college plans could fall through as well. In a household with only one paycheck, there is substantially less money to work with.
Not Keeping Your Marriage Alive
Currently, the divorce rate for parents is more than 50 percent and is steadily growing. Many marriage experts blame this high rate on parents tending to put their kids above their spouse while neglecting their significant other. Although parenting comes with many sacrifices and compromises, putting your kids first is not good for you or them. Marital problems can make everyone in your family suffer, and it comes with a range of financial issues. One study found that one in five divorced women fall into the category of poverty as a result of their divorce.
Not Financially Educating Your Kids
Children who do not learn the proper use of money may end up being real world failures. This is because those who are not taught financial literacy will likely have a hard time properly budgeting, using credit, and balancing a checkbook. If your kid never learns how to save money correctly, you are setting them up for failure. Instead, teach your children the proper use of money as soon as they are old enough so that they are well versed in saving, sharing, and spending. You may think that your children’s money habits form when they are teenagers or even young adults. However, in many cases their money habits are developed much younger.
Setting a Bad Example on Spending Money
If you are unable to handle your own finances, then it will be much harder to teach your kids the needed financial lessons. If your finances are a mess or if you tend to set bad economic examples then keep in mind that not only does that impact yourself, it also teaches your little ones to make the same mistakes. Spending too much money, not saving enough money for your future, or falling into debt are all things that not only set a terrible example for your kids, but it also renders you incapable of aiding your children with college, their wedding, or any endeavors that you may want to help them with.
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