The birth of your first child is guaranteed to turn your world upside down — it’s definitely a joyous time, but it can also be really overwhelming. There’s so much to cope with, including the stark realization that a full night’s sleep will probably elude you for many years to come. In those dazed and confused early days of parenthood, it’s no wonder so many new parents are prone to making financial mistakes. But you don’t have to — with a bit of foresight and planning you can avoid making these top money mistakes:
Not having a will
A will doesn’t just spell out who gets what when you die — it also sets out what would happen to your children if you and your spouse died at the same time. Without a will that names your child’s legal guardian, the court will appoint one, no matter what your wishes might have been. The same goes for your money — if you die or your spouse dies without a formal will, your estate might not end up going where it should (to your spouse or kids!). Or it could end up in probate, with your assets stuck in legal limbo at the time your family needs them most. This article explains why a will is important and gives some tips for putting one together.
Not having enough life insurance
Now that kids are in the picture, you need to make sure your family is covered in the event something happens to you. Even if you already have a life insurance policy, you need to make sure it’s enough to cover the new expenses that come along with parenthood, like childcare and education. How much should you have? As always, it depends on your situation — one expert I came across recommended a policy worth $500,000 at a bare minimum. Calculators like this one can help determine what amount works best for you.
Buying too much baby stuff
From diaper-wipe warmers to that $40 hand-knit baby cap, you can end up spending a ton of money on things you will never use. When it comes to getting ready for baby, a little careful planning can help you avoid spending hundreds of dollars on items that will merely gather dust in the nursery. Before the baby is born, you don’t actually need much to get started. Here is a great, basic checklist I used to help me set up for my first baby.
Buying everything new
Your new baby won’t stay tiny forever — no big surprise there, but it does mean that they’ll go through their sleepers really quickly. And their needs will change constantly. That’s why hand-me-downs are a new parent’s best friend. If you don’t have a good source willing to give you their cast-offs, then don’t be too shy to ask around.
Second-hand stores and web sites like Craigslist are another place to source gently-used baby items. A word of warning though: things like car seats, strollers and cribs need to meet strict safety standards that change frequently. Do your homework first and check for any recalls or product warnings.
Not doing the paperwork
You’ll probably get a big package of government forms to complete when you’re still in the hospital — they include applications for your child’s birth certificate and social insurance number. You need to fill these out to register your newborn and qualify for the Canada Child Tax Benefit. You also need a social insurance number to open a registered retirement savings plan (RESP) for your new baby…which leads us to yet another mistake new parents tend to make.
Ignoring education savings
It’s never too soon to start putting money away for your child’s education. And the sooner you open an RESP for your child, the sooner you can receive the Canada Education Savings Grant. It matches 20 percent of your RESP contributions on an annual basis to a maximum lifetime grant of $7,200 per child. So, if you put in $500 in the first year, the government will give you an additional $100 in grant money. This is one big leg up when helping your kids pay for college or university.
Ignoring your own financial needs
Having a new baby is a huge life adjustment — and often it means a reduced income when one parent leaves work to stay home. There are a couple of things parents tend to ignore when their kids are young, and retirement savings is a big area of neglect. Planning for your retirement is part of being a parent — do you really want your kids to have to support you financially when you stop working? Don’t lose sight of your financial plan just because you have small children to take care of.
And don’t forget to plan for a little bit of fun — being a new parent is a huge life adjustment. Sometimes you need a break. Whether it’s money for a babysitter so you can go to a movie, or money for a pedicure, try to make a bit of room in your budget for a few treats for you too.
Caroline Cakebread is a Toronto-based financial writer and editor. She’s also a recovering academic and the mother of two kids. Check out her personal finance blog for Chatelaine Your Money.