Your Financial Health: The Four Biggest Financial Mistakes New Parents Make

Mistake #1 – Failing to Protect Yourself and Your Spouse

Recently on a trip I heard the typical pre-flight announcements, “…If you are seated next to a small child, secure your own mask first, then assist the child.”  It goes against our instincts as parents to take care of ourselves first before we help our children – yet it’s essential.  If something should happen to yourself or your spouse, you should have financial security measures in place for your surviving family.  Please realize how important it is to have adequate protection for your family. 

Mistake #2 – Not Having Clear Financial Goals

Before becoming a financial advisor, I was guilty of this.  I did things merely because they ‘felt’ right – toss a little money into a 401k retirement, throw a few bucks into a 529 college savings plan, etc.  When I took a moment to reflect on what mattered to me personally, it all became clear.  I identified four financial goals – a comfortable secure retirement for my wife and I, paying for my kids’ college education, a modest vacation home in Colorado, and leaving a legacy for the next generation.  Now that I knew where I wanted to end up, I determined how much money I’d need to save and where I’d need to save it to help realize my dreams. 

It was sobering to see that I was not saving enough and that I’d either have to do more or adjust my goals.  As an advisor, it’s embarrassing to admit that I paid overdraft fees, carried a credit card balance and surprisingly spent nearly $75 a month on fees for services that I didn’t need anymore.  I quickly discovered over $1,000 in savings each year with zero impact to my quality of life.  In fairness, my wife and I did make some sacrifices, such as waiting to buy new cars but I’m proud to say that we’re on track to reach our four goals.

Mistake #3 – Not Having the Right Mix of Investments

I find it humorous when I read articles that proclaim a set strategy for how to invest.  An example of this might be “take 100 and subtract your age to determine how much stock you should own.”  This would imply that at thirty, you should own 70% stocks (equities) and at sixty, you should have 40%.  But think about how dangerous this is for a thirty year-old saving to buy their first home next year.  Since stocks are ‘riskier’ (have bigger ups and downs) than many other financial assets, a relatively common ten percent stock market ‘correction’ could suddenly make a down payment unaffordable.  The same scenario would apply to parents saving for their children’s education as the enrollment date draws closer.  There are many factors that ought to be considered when establishing the ideal investment mix and I encourage readers to discuss this with a financial professional. 

Mistake #4 – Poor Estate Planning

Many parents aspire to leave their kids in a better financial situation than they received.  If you are one of them, some basic estate planning early on can help provide a major boost to heirs down the road.  The most common reaction that I get when I mention estate planning is “I’m not a millionaire so this doesn’t apply to me.”  However according to Realtor.com, the average sales price for a home in Princeton, NJ is over $695,000.  Since the New Jersey state estate tax begins at $675,000 as of 2015, many local families could be affected.  The good news is that with a bit of proper legal and financial preparation the estate tax burden can be limited or eliminated altogether.  While even this limit may seem far-fetched for folks in their thirties, incomes and investments tend to grow with time.  I’ve seen firsthand how being proactive can help increase a family’s wealth even in cases of modest wealth.

Scott Levy, has a MBA in finance (NYU-Stern ’05), joined Allied Wealth Partners as a financial advisor after being a client for many years.  Along with his team, Scott’s philosophy is to provide clients with high-quality ideas and strategies that fit their particular needs.  Scott lives in Lawrenceville with his wife, Nurit, and two children, Jefferson and Lynx.  Scott can be reached at slevy@alliedwealthpartners.com. 

Allied Wealth Partners, 1350 Broadway, Suite 1407, NY NY 10018.  Securities and investment advisory services offered through Securian Financial Services, Inc., Member FINRA/SIPC.  Securities dealer and registered investment advisor, Allied Wealth Partners, is independently owned and operated.  This should not be considered specific tax or legal advice.  You should consult your tax or legal professional regarding your own personal situation.