As a young parent, you often have so much on your plate that you overlook other important things, like saving money or getting life cover,” says Jowyk Muller, co-founder of Hero Life, an online insurance company for young parents, and a dad himself. “We are all too familiar with parents who are juggling so much and don’t have the time or foresight to crunch the numbers or plan for the future. However, there are steps you can take to fix the ‘wrongs’, and turn financial mistakes into fantastic actions that will benefit you and your family,” he says.
According to Jowyk, these are the most common financial mistakes young parents make:
Not getting life cover
Not getting life cover is a disservice to your children and your partner. Your partner will be left with a single income, and your children could be left without funds that would see them through their education and beyond. Whether you work or not, life insurance should be a priority, and it’s an affordable investment each month that will one day be a huge “gift” for your family.
Living from paycheck to paycheck
Let’s be honest, rising food and fuel prices are making it difficult to stay out of debt, and putting something away at the end of the month is difficult. There are apps that can help you budget and reorganise your family finances to get rid of those anxieties at the end of the month. Start by drawing up a family budget listing all income and expenses, and identify the nice-to-haves versus the must-haves.
Not having a will in place
When someone dies without a valid will, they effectively give up the right to decide how their estate (which includes their cash, savings, investments and property) should be divided and to whom. Many parents don’t realise that if they don’t properly state their children’s legal guardian in the will, the courts may pick someone to take care of them – and it might be Aunt Jane who is financially secure, but doesn’t share your values. The expectation is usually that the spouse will take care of the children, but a couple may pass away at the same time or within close proximity of each other, which is why it’s essential to appoint a legal guardian for your children.
Regardless of your assets, you still need a will. It’s not just about money or possessions – a will can contain special requests that you want adhered to when you die, including your burial and who will take care of your pets.
Using savings to pay off debt
This is not always a bad idea as the cost of debt can hurt you in the long run. Start by not adding to your debt. One of the most expensive forms of debt is your credit card or short-term loans from loan sharks. Pay those off as soon as possible and close those accounts for good. From here on, prioritise your savings to get rid of the leftover debts like clothing store cards.
The best advice, however, is to stay away from debt and free yourself.
Spending beyond your means
This is never a good idea as simple mathematics will tell you if you spend more than you earn, you’re not saving and not creating wealth but actually taking a few steps backwards. Budget, budget, budget! And remember, saving is not what’s left after spending. Spending should be about using what’s left after saving.
Not planning for retirement
Only about 6% of all South Africans can retire comfortably. This means there is huge pressure placed on government and families to support the other 94%. As a rule of thumb, you should put away at least 15% of your income every month towards retirement. The South African Revenue Service (SARS) is also supporting retirement savings through tax incentives that put money back in your pocket. It’s never too late to start.
Not discussing finances
Money − not sex or household chores – is what couples between the ages of 18 and 40 argue about the most. One of the reasons for this is a lack of transparency around money matters. As a family unit, you can’t plan your family’s future if you can’t speak openly and honestly about money. Being transparent empowers a family to set financial goals and support each other in pursuit of those goals.
Avoid judging your partner. Instead support, and set goals with each other. Share responsibility in getting to these goals and celebrate your successes together.