Parental finances may not get the same attention as diapers and vomit, but they can sneak up and fling themselves on you in much the same manner.
Because of this, many new parents either avoid important issues or make last-minute decisions that don't pan out very well.
Let's look at some common mistakes new parents—whether they are single or partnered—often make:
Not having health insurance
Look into all your options for health insurance, including state-sponsored coverage. If you can get a plan with a high deductible and lower premiums, you might qualify to set up a health savings account and get tax breaks for your contributions to it.
Spending too much money
If you're the average parent, you can expect to spend over $250,000 on your child from birth to 18—and that's if things go smoothly. Lavishing money on babies is a real high for new parents. But lavishing every comfort on them is not only unnecessary but can create unrealistic expectations and dependencies from that child and future children—which can cost you years down the road if they have not developed responsible money habits and keep begging you for money.
Remember that much of what you buy will be used only for a year or so, so is it really important that it be so hip (and does your baby really care)? Rediscover hand-me-downs and yard sales all over again.
Not having a will
You don't need a big estate to need a will, so draft one now. Also, without a will to designate a guardian for your child, a court will do it for you, and you may not like the outcome. Taking the time to write a will—perhaps with the aid of an attorney—can ease a lot of worry.
Not saving for your own retirement
Parents often stop contributing to their retirement plans when the babies arrive. If you are starting your family later in life, this may not have adverse effects because you may have sufficient funds saved up already; if you are younger, it will have adverse effects, and it will jeopardize your quality of life in your later years. You can't always count on your children to help you out when you're old and gray. Cut your expenses and keep contributing to an IRA, 401(k), or other plan.
Not taking precautions for your premature death
This is why life insurance is popular. Unless you are wealthy, you will want a way to provide for your dependents if the unspeakable happens. Suggested coverage amounts vary, but a good rule of thumb is five times your earnings. More, if you've got a lot of debt and/or other burdens.
Then there's disability insurance. The probability of being injured to the point of temporary disability is high enough to consider this insurance. The price isn't prohibitively expensive. Take a look at your monthly spending to see how much coverage you might need.
Not knowing all your tax breaks
Junior can get you some nice tax breaks. You can take the child tax credit, the dependent care credit for childcare costs, custodial investment accounts, and an adoption credit if you adopted. If you don't want to peruse the IRS Website for information on these, consider meeting with a tax advisor to learn more.
Not taking advantage of employer benefits
Does your employer let you participate in a dependent care account? If you are fortunate, you can divert a sizable amount of money into one each year.
Dive deeper: Having a baby? Here's how to plan financially
This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.
Read more information and tips in our Family section