Money Mistakes By New Parents

It's been a while since i posted a financial related post. I doubt most will read it, but at least I condensed it. I pulled the information from an article written by Karen Hube that was posted on msn. The full version can be found here.

Skimping on life insurance
Once you become a parent, having enough life insurance is essential. If one or both parents dies, you have to make sure your dependents will be provided for.

Shrugging off disability insurance
Disability insurance is arguably even more important, because it's statistically more likely that you will get injured than die while you’re in the workforce.

Buying life insurance for baby
You buy life insurance on someone only if their death would create financial hardship. Typically the only financial hardship created would be funeral cost.

Delaying saving for college
Most parents start fretting about tuition when their kids are entering high school - way too late. The best time to start is when you child is born. Even if it is only a small amount each month.

Forgetting what's most important: retirement savings
Once you're faced with the monumental task of saving for your child's college tuition, it's easy to shrug off saving for retirement. This is a big mistake. Saving for retirement always comes first, college comes second. You and your child can figure out other ways of getting through school. It would be worse if your child had to support you during your retirement.

Postponing a will
Many parents assume they don't need a will, because they don't have large estates. But if you have a child, a will is essential to designate guardians. If you and your spouse die prematurely without a will, a court will appoint guardians for your children.

Overspending on baby costs
While a lot of this spending is necessary, some of it isn't. Many seasoned parents admit their most irresponsible spending occurred in their children's earliest years and before they were even born. Who really needs a $500 hand-stitched crib bumper? New parents think they need everything, want everything to be perfect, and don't know what things cost. Before you start setting up a nursery, come up with a spending plan. Accept hand-me-downs, and shop at yard sales and consignment and second-hand shops. Remember that a lot of what you buy will only be used for about a year, sometimes less -- especially baby clothes.

Overlooking tax benefits for parents
One that many parents overlook is the ability to sock away up to $5,000 of pre-tax money for child care through an employer-sponsored savings program. Called flexible spending arrangements (FSAs), most medium and large employers offer them. Also, ask a tax advisor about other options available.

Saving in a child's name
Any money saved in the child's name will reduce the amount of college financial aid she is eligible for, whether the money is intended for college costs or not. If the money is for college, invest in a 529 plan or a Coverdell IRA, or simply keep the money in a separate account. That way there’s less of a chance it will get used on home improvements or a new family car.

Oversimplifying the work vs. stay-at-home question
At a glance, the question of whether one spouse should quit work to care for your new baby seems clear cut: If the spouse earns only enough to cover child care costs, staying at home probably makes sense.But there are numerous other financial factors to consider. The most commonly overlooked is the costly benefits package provided by your employer. Benefits are often worth about 35% of your salary. Run a comparison of what it will cost to replace the benefits you need if you leave your job. Also, figure in how your other expenses and benefits will change. For example, if you leave your job, you will cut out commuting expenses and the cost of pricey work clothes.