Parenting guides outline when infants typically achieve physical milestones. Parenting courses teach proper techniques for bathing a newborn and changing diapers.
Yet new parents — who are estimated to spend about $233,610 raising a child from birth through age 17 — frequently feel bewildered and ill-prepared when it comes to managing their finances after bringing a baby home.
Laura Adams, host of the “Money Girl” podcast, chatted with Andrea Woroch, a consumer savings expert, about typical financial missteps new parents make. Woroch also shares tips drawn from her experience as the parent of a 2-year-old with another child on the way.
5 Financial Mistakes New Parents Make
“Welcoming a baby is undoubtedly a joyous occasion, but it can also bring emotional and monetary strain,” Adams notes.
If you’re expecting or planning a family, take heed of these common financial errors so you can begin parenthood on firmer financial ground.
Mistake No. 1: Failing to Build an Emergency Fund
Having a child adds significant responsibilities — and new expenses. Creating a savings cushion is essential.
One partner may need time off work after the baby arrives, which can reduce household income. Additionally, monthly costs can rise — higher health insurance premiums, and the little unexpected expenses that pop up, like ordering takeout on nights when you’re too worn out to cook.
When planning for kids, it’s wise to park money in a high-yield online savings account. Also explore ways to trim spending, such as using tried-and-true tips and tools to cut grocery bills.
Mistake No. 2: Not Planning for Child Care Expenses
Child care is often among the largest ongoing expenses parents face during the first years. Yet a recent survey by Savinly found roughly 85% of respondents hadn’t saved specifically for child care costs before their child was born.
Doing homework ahead of time helps parents set realistic expectations. There are also strategies to lower costs, such as seeking more affordable care arrangements or swapping free babysitting with fellow parents.
Mistake No. 3: Skipping Life Insurance
Celebrating a new arrival isn’t usually when people think about end-of-life planning. Still, securing life insurance is a prudent move when you have a dependent child.
Experts generally recommend coverage equal to about six to eight times your yearly salary, and it’s sensible to have a policy even if you’re currently a stay-at-home caregiver.
Mistake No. 4: Overspending on Baby Products
It’s easy to get carried away buying adorable outfits, plush toys, and that vibrating rocker everyone insists you’ll need, but many newborns do just fine without all the extras.
Cut costs by distinguishing needs from wants. Rely on hand-me-downs and consider buying lightly used equipment instead of spending top dollar on new items your child will soon outgrow.
Mistake No. 5: Delaying College Savings
The benefit of compound interest grows when you start saving early. It may feel strange to set aside money for college while your child is still in diapers, but beginning early maximizes your savings potential.
A 529 college savings plan is an excellent option for gathering funds for a child’s future education. You can also invite friends and relatives to contribute in place of birthday or holiday presents.
For more guidance on managing money as a new parent, listen to the podcast.
Nicole Davis is a senior writer at Savinly. She is the parent of a 4-year-old and has made nearly every money mistake new parents commonly make.
