New parents often make costly money mistakes that can affect their finances long-term. Underestimating the cost of raising a child and failing to adjust their financial plans accordingly can lead to financial strain. Being aware of these potential pitfalls can help new parents make smarter financial decisions and avoid unnecessary stress.
1. Not Having A Budget
You’ll need to have a plan, when it comes to budgeting. Budgeting helps you see what you need, and what you don’t need. Rather than spending blindly, budgeting helps you be smarter with your money. Think about the types of groceries that you’ll need for both you and baby, along with the bills, doctor visits, transportation needs, and so on, that you and your baby will need. In this way, you and baby can be ready for any other expenses that might spring up on you.
2. Not Having A Safety Net
Yes, having a safety net is essential. Sometimes, life might throw some curveballs at you without warning. This is especially common for new parents since they’re still new to the game. That’s why it’s important to set up an emergency fund. Essentially, you set aside money every time you get paid (if you have a job); or, if you receive money as gifts, you can set that aside for emergencies. In this way, you’ll create a safety net for whenever things like medical or repair crises arise.
Follow Invested Wallet For More
If you’ve enjoyed reading our content and are passionate about learning wealth, managing your finances, and achieving financial freedom, we’d love for you to join our community! Click here to follow Invested Wallet for more.
3. Spending Too Much On Baby Things
Who wouldn’t want to spoil their first child? In fact, as a first-time parent, you would want to treat your child to many things like toys, clothes, and other nice things. After all, you only want the best for your bundle of joy. However, while it’s great to treat your child with toys and goodies, it’s still important to be wise about your spending habits. Essentially, you have to think about the things that your baby will need.
4. Spending Too Little On Baby Things
Now, just because you’d want to save money, doesn’t that you should deprive your child from having things like toys, food, and other necessities. It’s important to make sure that your child is well-fed, well-entertain, and well-off. That’s why you should set a good budget for how much to spend on your child, and how much to save. Just as long as you’re not cheating your child out of certain things, you should be okay on the financial part of things.
5. Not Saving For Retirement
One of these days, you’ll find yourself needing to retire from your job. While retirement can be a new phase in your life, you’ll need to be ready before that day comes. That means, now is the time to start saving for retirement, if you haven’t done so already. (Yes, right now!)
While saving for your child’s college fund is just as important (which we will cover later on in this guide), you would still need to think about squirreling away money for retirement. If you need to borrow money from your child’s tuition, you can. Plus, if your place of employment offers 401(k), then don’t hesitate to sign up for it.
6. Not Looking At Eligible Tax Savings
Believe it or not, there should be tax breaks and savings, if you’re a parent. In fact, there are tax breaks for almost any situation, if you do your homework really well. So, it pays to do your homework and find tax breaks that you’re eligible for. The Internal Revenue Service (IRS) has a page where you can check out your family’s eligibility for any tax breaks, credits, or deductions.
7. Not Looking Into Life Insurance
Life insurance, whether you have children or not, is important for anyone and everyone. Having life insurance is essential, because if you, your spouse, or both you die for some reason or another, then it’s important for your dependents – your beneficiaries – to be provided for when you’re gone.
One option is to get some life insurance coverage through your employer. However, you can never rely too heavily on it, because that’s not enough to cover everything if something were to happen to you. Plus, if you get laid off, or you get fired, you’ll lose your employer-provided insurance.
8. Not Looking At Disability Insurance
It can be devastating for your child to either grow up to have a disability or be born with one. However, that doesn’t mean that you can’t find disability insurance for them. Even if you’re financially well off, you should still think about getting disability insurance. Like anything else in life, debilitating injuries can lead to disability, which can cost you thousands of dollars if not covered by insurance.
9. Signing Your Child Up For A Savings Account
Like anyone else, your child will eventually learn to save money. However, when opening a savings account for your child, don’t do it prematurely. While it might be tempting to open a custodial savings account after a relative sends your child a check or money, it’s a big no-no. Why? Because if you need money right away, you can’t access it. Plus, having a savings account for your child can make you ineligible for financial aid.
10. Ignoring A Healthcare FSA
According to Healthcare.gov, a flexible spending account (FSA) is where you put money into it, and then use it to pay for certain out-of-pocket healthcare costs, while not having to pay taxes on it.Ignoring this beneficial account can cost you in the long-run. Without an FSA, you’ll risk paying for doctor visits, bills, etc. out of pocket, which can take a toll on your wallet. So, why not save big by signing up for it?
11. Not Having The “Money Talk” With Your Child
As you can see, financial literacy is important to have. And, believe it or not, kids are never too young to learn the basics of financial literacy at a young age. For example, kids love to role-playing and use their imaginations. If they love to play store, they’re already understanding the basics of financial literacy. And, once your child grows older, you can introduce them to allowances in exchange for completion of chores, homework, or other responsibilities.
12. No College Fund
College is a great thing, especially for your children. Now, while college can be an exciting experience for your child, you might be worried about how you’ll be able to afford it. If you haven’t already been saving money for their college fund, then it’s normal to worry. Therefore, the best time to think about your child’s college venture is when they’re born. Besides the 529 plan that we’ve discussed earlier, there are other, attractive tax-free college savings options to consider for your child.
13. Buying Life Insurance Willy-Nilly
While life insurance is desirable in today’s standards, it’s still important to do your research ahead of time. In fact, you wouldn’t want to be stuck with an insurance policy that won’t help you and your child the slightest or would cost you a lot for the premium. Don’t be tempted to buy a lifetime policy that can turn out to be costly, if your child develops a medical condition later in life. Buying a policy for less now will ensure that your child is always insured.
14. Ignoring Childcare
While giving birth can be costly by itself, so is childcare. Nowadays, daycare centers can cost an arm and a leg, in order for your child to go there for just one week. Plus, babysitters can be costly, even if you hire them to watch your child for a day.
The good news is, when it comes to childcare, there ARE options. Depending on your income, schedules, and life situations, you should research which childcare options are right for you. Would you rather pay for a daycare center to look after your child? Would you rather hire a babysitter to watch your child? Would you rather have a relative care for your child? Or, would you rather devote your time and energy on childcare? Whatever you choose for childcare is up to you.
15. Make Sacrifices
Yes, as new parents, you’ll be exposed to many changes in your life. For example, you might find yourself buying more Pampers and baby formula than recreational things like, say, alcohol and video games. That’s totally normal for new parents.
Making sacrifices will be something that you’ll need to do in order to afford things for your baby like clothes, food, medical expenses, and so on. And, just because you’re sacrificing one thing, doesn’t mean that you’ll need to do it forever. Though, if you manage to give up something (i.e., alcohol) for your child, then that might be a good thing.
Follow Invested Wallet For More
If you’ve enjoyed reading our content and are passionate about learning wealth, managing your finances, and achieving financial freedom, we’d love for you to join our community! Click here to follow Invested Wallet for more.