You’re about to have your first child. On top of doctor visits, nursery preparation and managing general anxiety, you’re also wondering how you’re going to pay for all of this. You’re not alone. Paying for a child or multiple children is extremely expensive and requires as much planning as you can do.
Of course, you’re bound to run into costs you didn’t expect, but if you have a plan of action, you’ll be better prepared. Here are some mistakes new parents often make that you can hopefully avoid.
You might have a ton of new expenses, but if you can save any money at all, you should.
“Most people know [saving] is important, but relatively few do it, and it becomes that much more important with the responsibility of raising — and paying for — a child,” said Tanya Peterson, the vice president at Achieve. Peterson says many experts suggest saving 10% of every payment received, and upping it to 15%, 20% or even 25% or more if possible.
No Emergency Fund
Now that there’s a child in the picture, there is a higher probability of emergencies or unanticipated expenses. Without an emergency fund, these costs become a lot harder to bear. Peterson advises building an emergency fund that would cover six to nine months of living expenses.
Forgetting About Insurance Costs
“Even with good health insurance, out-of-pocket costs can add up,” Peterson said. She says you’ll want to make sure you account for premiums, deductibles and a realistic estimation of out-of-pocket expenses.
Not Having a Budget
If you don’t have a budget set up, when you have kids is a perfect time to start.
“Try tracking all expenses day by day for a couple of weeks to find out your spending patterns — you may be surprised — and adjust the budget accordingly,” Peterson said.
She adds that you’ll want to think ahead, so you can plan for costs that will need to be incorporated into your budget as your child gets older. “Beyond school supplies, most students need to purchase textbooks — online or in paper format. Schools often impose fees for activities ranging from field trips to sports. If your child is involved in other activities outside of school — e.g., music or art lessons, dance, clubs — find out what to expect in costs for the year.
“There are also birthday parties and gifts, teachers’ gifts, school pictures and school-sponsored events for nonprofit organizations. And don’t forget clothes, whether uniforms or not,” Peterson explained.
Budgeting Without Goals in Mind
“Before writing down figures, work together with your spouse and family to set your family and individual goals,” advised Peterson. It’s more effective not to just write out how much money you’ll need, but any savings goals you have as well, so your family can stay on the same page and achieve those together.
“Maybe the goals range from taking a vacation to funding a child’s college education to retirement. Write them down, and build the budget around those goals. You’ll revisit and modify month to month, year to year, throughout life, but approaching budgeting this way will dramatically up the chances you’ll stick to the budget,” Peterson said.
Making the Budgeting Process Unnecessarily Hard
If your budgeting process is too hard, you’ll never do it. Make it simple, so it’s easy to manage.
“Use a spreadsheet, pencil and pen, or an app. There are plenty of free budgeting apps available; choose one that lets you connect all financial accounts for a unified view of your finances, predicts how much money left over you are expected to have each month and automatically tracks past and current spending,” Peterson said.
Spoiling Your Kids
It’s hard to say no to your little ones, but Scott Lieberman, the founder of Touchdown Money, says it’s for their own good.
“Let’s say you make a special stop one day to buy your kids their favorite pizza. The next day, they’ll want to do it again — because they’re kids! So what should the parents do? The first step is to say ‘no.’ You can’t afford everything your kids want. But then the second step is just as important, and that’s to explain why you can’t make special purchases every day. This is where they’ll learn to be responsible spenders themselves as they grow older,” Lieberman said.
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