Starting a Family? 5 Money Mistakes New Parents Make
Becoming a parent is exciting, but it can be a huge stress on your finances if you’re not prepared. Find out smart tips to save money and avoid common money mistakes that many new parents make.
Laura Adams, MBA
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Starting a Family? 5 Money Mistakes New Parents Make
Having a baby is supposed to be a joyous time, but it can also be emotionally and financially stressful. The average American family spends about $12,000 on child-related expenses in their baby’s first year alone. And raising a child to age 17 is estimated to cost a whopping $233,000!
To help you get a handle on what to do and not to do, I interviewed Andrea Woroch. She’s a mom and a nationally-recognized consumer and money-saving expert. Andrea regularly contributes to leading national and regional news stories and has been featured on “NBC’s Today Show,” “Dr. OZ,” “Good Morning FOX & Friends,” “MSNBC,” “CNN,” “ABC News with Diane Sawyer,” and many print and online outlets.
Some of the topics we cover include:
- How to cut the cost of childcare
- Ways to earn more and stop living paycheck to paycheck
- Tips to raise cash by selling unused household items
- Best places to buy baby goods for less
- Getting maternity benefits and disability insurance
[Listen to the interview using the audio player on this page or on Apple Podcasts, Stitcher, and Spotify]
The following tips were provided by Andrea.
5 Money Mistakes New Parents Make
- Not saving enough.
- Under-estimating the cost of childcare.
- Ignoring life insurance needs.
- Spending too much on baby goods.
- Putting off college savings.
Here are five common money mistakes that new parents make and how to avoid them.
1. Not saving enough.
A recent survey from PurePoint Financial found that half of Americans do not have a savings target set within the next five years. If you’re expecting a baby, it’s especially important to create savings goals so you can cover time off from work.
Even if your employer offers a maternity benefit, it probably doesn’t cover your full salary. In addition, there are many new expenses you’ll have, such as childcare, health insurance, and everyday baby essentials.
You also need to have an emergency fund for extras or unexpected expenses that creep up. Those could include parenting classes, formula if you can’t nurse, and ordering take-out when you don’t have time to cook. Having a cash cushion will give you peace of mind that your family could get through any hardship.
Start saving from the moment you begin planning a family by automatically transferring funds into a separate account. Use a high-yield online savings account, such as PurePoint Financial, which currently offers 2.15% APY.
Bonus Tip from The Penny Hoarder
Here are four easy ways to cut your grocery bill each month. If you’re looking for more tips on how to save money on groceries, check out The Penny Hoarder.
- Skip shopping. Consider buying your groceries online.
- Download the Ibotta app. Apps like Ibotta will pay you in cash if you buy items associated with their app.
- Download the Shopkick app. Once you sign up, the app pays you in ‘kicks’ for walking into certain stores, like Walmart, Target, and more.
- Go generic. When possible, go with the generic brand of the product. Store brands now often include gluten-free, organic, and specialty items, but at a fraction of the price of big-name brands.
2. Under-estimating the cost of childcare.
The cost of childcare varies dramatically depending on where you live and the type of care you want, such as a daycare center or an in-home nanny. According to the National Association of Child Care Resource and Referral Agencies, the price ranges from $3,582 to $18,773 a year. The average cost of center-based daycare is $11,666 per year or $972 a month.
In addition to childcare to cover your working hours, you’ll probably want to budget for childcare on occasional weeknights and weekends. You can save money by setting up a babysitter exchange with friends who also have young children.
To pay caregivers, use a mobile app such as Zelle to send money from one U.S. bank account to another, instead of the hassle of getting cash or writing checks.
3. Ignoring life insurance needs.
No one enjoys thinking about dying after bringing home a new baby. But purchasing life insurance is one of the most important financial tasks you should complete when planning a family.
The cost of a life policy varies depending on your age, health status, and amount of coverage needed. But a good rule of thumb is to have at least six to eight times your annual income.
Even a stay-at-home parent should have a life policy that would cover the cost of childcare that would be required after his or her death. Bankrate.com’s life insurance calculator can help you figure out how much coverage you need.
4. Spending too much on baby goods.
There are endless baby goods, such as rockers, swings, and toys, that retailers want new parents to think they need. But many gadgets can only be used for a few months and are likely to end up being a waste of money.
So, ask friends and family if you can borrow their old baby goods and search for used items online. At the Facebook Marketplace, you can chat with other parents in your area about items they have for sale and negotiate prices.
Don’t fall into the trap of thinking you need a bigger car, a bigger house, or a Pinterest-perfect nursery. This is a time to simplify life instead of piling on financial stress.
5. Putting off college savings.
If you dream of paying for your child’s college education, start planning and saving from the moment he or she is born. Saving smaller amounts over a long period of time is the secret to accumulating more on a budget.
Set up a 529 college savings plan and get family and friends involved. Instead of buying your child toys or other gifts, ask people to contribute to the savings plan for holidays, birthdays, and graduation celebrations.
If you’re not sure how much college savings you’ll need, use the calculator at SavingForCollege.com.
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Happy Family New Parents image courtesy of Shutterstock
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.