As a parent, you have a lot on your plate. That’s why money management should be easy. UW Credit Union gives us ten pitfalls to avoid so your budget will grow along with your children.
1. Having a big house on a small budget.
Homes have gotten bigger, even though the traditional family size has gotten smaller. Try to do more with less. Consider having your children share bedrooms for a few years or convert your basement into useable living space. If you’ve outgrown your home, look for homes in affordable neighborhoods.
2. Driving away in the wrong vehicle.
Research fuel economy and consider buying a used vehicle. Buying a used car that’s just one year old can save you money. Consider keeping your vehicle for a longer time period than frequently trading it in for a new one.
3. Overspending as new parents.
Overspending and wanting everything to be perfect are common trends for new parents. Come up with a budget, and be willing to shop at garage sales, thrift stores and consignment shops. Remember that items are frequently used for a year, and with clothing, even less. Accept hand-me-downs from friends and family. Baby showers are also a good way to acquire needed items.
4. Miscalculating stay-at-home versus work costs.
Many parents oversimplify this by being too clear cut—if one parent barely earns enough to cover child care costs, staying at home is assumingly the right fit. However, many financial factors are left out of the decision, including how much it would cost to replace the benefits package provided by an employer, which typically accounts for 35% of salaries. Factor in commuting costs as well as other work-related expenses, such as wardrobe.
5. Not having an emergency fund.
It’s important to be prepared for unexpected events—anything from appliance and car repair or replacement to medical bills and job loss. This will help avoid financial setbacks and potential credit card debt. Try to have at least six months worth of reserve funds to cover expenses.
6. Putting off saving for college.
You don’t want to start thinking about saving for college when your child is in high school. Due to the increasing cost, it’s best to get started when your child is an infant. In fact, collegecalc.org estimates that the cost of a four-year degree in 2032 will be $442,698! Get started by setting up a 529 plan. It’s an investment account to help you save specifically for the purpose of paying college expenses. Learn more from the College Savings Plan Network, and see your financial consultant for additional details. Use our calculator to help estimate your child’s college costs.
7. Sacrificing retirement for college.
Although saving for college is important, don’t ignore saving for your own retirement. Why? You don’t want your children to have to support you in retirement, which can be costly and create financial distress. Remember, in addition to establishing a college savings plan for your child, there are other ways to fund education including scholarships, grants and loans. Save for your retirement by contributing to your employer’s 401(k) plan and contribute enough to receive the full employer match. If you’re not, you’re throwing away free money. Or, contribute to an IRA.
8. Ignoring tax savings.
In addition to the personal exemption per child, which is nearly $4,000 annually, there are other tax breaks to consider. There’s also the child tax credit, credits for child care, adoption credits and tuition credits for special needs children. Some credits will be dependent upon your income. Consult your tax advisor for details.
9. Overlooking insurance needs.
Having children makes it even more important to have life insurance. In the event that one or both parents pass away, you will want to ensure your children are provided for. Plus, a workplace policy may not offer enough coverage. You may want to consider purchasing a supplemental policy in case you would become laid off from your job. You’ll also want to make sure you have disability insurance to cover your living expenses should you become injured or ill.
10. Avoiding teachable money moments.
Parents are the most influential people in children’s lives when it comes to money. That why it’s important to teach children how to be good savers and investors, responsible spenders and thoughtful givers. Read our tips on how to get started here.
This post was written by UW Credit Union as a sponsored post for Madison Moms Blog