New Parents' Top 10 Money Mistakes

Here's a piece from Money Central that lists the top 10 money mistakes of new parents. Like most articles that are the "top 10" of anything, the first few are REALLY good and the last few are "ok" (but needed to get to "10"). So, the first six are the ones really worth reviewing. As such, I'll spare you the marginal ideas and focus #1 thru #6:

1. Skimping on life insurance.

2. Shrugging off disability insurance.

3. Buying life insurance for baby.

4. Forgetting what's most important: retirement savings.

5. Postponing a will.

6. Overspending on baby costs.

My thoughts:

1. A childless couple needs lots less life insurance (especially if both people work) than one with a child. They need it, of course, to provide for the child in case something happens to either one or both of them.

For more information on life insurance, see these posts:

• Insurance and Investing: Buy Term and Invest the Difference
• New Year is Perfect Time to Check Your Insurance Coverage
• Insuring Your Spouse

2. I have a disability policy that will replace a good amount of my income if I'm not able to work. And while it's much more likely that you'll be disabled than you'll die, people tend to pay much more attention to life insurance than to disability insurance. All I can say is: DON'T IGNORE DISABILITY INSURANCE. It protects the biggest asset you have (your ability to earn income) and it's a must-have for wage-earners. If you think differently, ask yourself if you'd go without house insurance. Of course not. Well, your ability to earn an income is much more valuable than even your house.

For more information, check out this post on disability insurance.

3. Question: How much income does your baby produce? None? That's the same answer to "how much life insurance do I need for my baby?"

4. Don't neglect retirement savings for any reason: not for spending, not for college savings, not for anything.

For more information on this issue, see these posts:

• Saving for Retirement vs. the Kid's College
• Seven Ways to Balance Retirement Planning with Your Children's Education

5. Do not postpone getting a will. Think of it as a lifeline for your child. And be sure to update it regularly.

6. I think you know how I feel about overspending on anything. ;-)

Comments

[Kim]

Something about insurance on your child though. I know they don't bring in any income but I think there are 2 other valid reasons why it might not be a terrible idea. The first is that funerals are expensive. If your child were to pass away, would you have the $6-10k that it would cost to give them a funeral? The second, a child passing is probably one of the worst things you would ever have to go through in life. You think you are going to go back to work after your 2 weeks of vacation are used up? Probably not. The payout on the policy would allow you to take more time to grieve. Just some thoughts.

[Quang]

I have a question about retirement Accounts? Don't neglect retirement accounts for anything, those this imply to your Emergency Fund account (eg. $400 for emergency), or your Security account (eg. $4,000 in case you get unemployed) ? I am not sure to invest like 10% in my Security Account, and 5% in my Retirement account, or just invest 15% in my Security Account to build it up quicker...

Retirement Account would earn at a higher interest rate...