Bringing a new life into the world requires smart financial preparation, including building a solid emergency fund before the due date and checking on your company’s maternity or paternity leave policy to plan for potential change in income.
However, not all couples are privy to best practices. Business Insider recently spoke with three financial planners who revealed some of the biggest money mistakes they see clients make before the birth of their first child and how you can avoid them.
Not creating or updating your estate plan
Though it can be unpleasant to think about, updating your will to include your child is one of the most important yet often overlooked tasks, says Eric Roberge, CFP and founder of Beyond Your Hammock.
“This is a huge risk when bringing a new child into the world. If you are not around to take care of your baby, who will? This is not something that you want the court to decide,” Roberge says.
“Life insurance will make sure that your children will always have the financial resources they need, and a will allows you to name guardians for your children,” Becker said. “These are the kinds of protections that you hope you never need, but would be invaluable if you did.”
Ignoring the ‘baby budget’ until arrival
One of the biggest mistakes that Mike Solari, CFP and founder of Solari Financial Planning, sees among new parents is expecting to live their current lifestyle with the addition of children. Generally, people don’t expect the costs of a child — and everything they hope to provide for them — to encroach on their personal spending habits.
“I think a lot of people are wanting to provide as much as they can for their child and, in turn, creating quite a bit of debt,” he said.
A simple way to prepare for the true cost of a child, suggests Becker, is to start living on your “baby budget” ahead of time, using a baby costs calculator to plan.
“Estimate your change in income … then start living on that new budget before your baby is born and put the extra money you’re not actually spending into a savings account,” he said.
Further, check on your employer’s maternity leave policy to calculate any loss in income while you’re out, and to ensure you’re not missing out on any benefits.
Not knowing your health insurance plan
“Understanding your health insurance plan is extremely important — what’s covered and what is not covered,” Solari said.
When Solari and his wife had their first child, he said, everything happened so quickly and bills were piling up. It proved incredibly helpful to be aware of what exactly was covered under their plan in order to get bills updated and paid on time, he said.
Becker advises soon-to-be parents to “call your health insurance provider and ask for an estimated cost of your labour and delivery,” because it may significant.
Overspending on unnecessary baby gear
Though it can be tempting to spoil your first born with with toys, clothes, and the latest and greatest baby gear, Becker reminds us that it’s a fast route to ruining your budget.
“[T]he truth is that a lot of it is unnecessary given that newborns really don’t need much more than some basic clothing, a place to sleep, and a whole lot of attention,” he said.
Failing to communicate with your partner
Having open, honest, and regular conversations about money is an important part of any marriage, and it’s especially pertinent when starting a family.
“One the biggest mistakes you can make is simply not talking about money with your spouse or partner,” Becker said. “It can be an uncomfortable topic, but you’re in this together and money is a big part of your family life. Finding a way to have regular, non-judgmental conversations will got a long way to relieving stress and getting yourselves on the right track.”
Solari said both spouses should also be verbal about what — and how much — they hope to provide for their child in terms of childcare and education.
“[I]f it is a particular daycare or having a nanny … Both partners should be talking about that and making sure they’re on the same page,” he said.