Biggest Money Mistakes New Parents Make
Writing for TheStreet the past 12 years, I’ve often cited Andrea Woroch, a prime time money-saving expert whose mission to help American families find simple ways to save more - without radically changing their lifestyle.
This week, Woroch points out that September is the most common birth month of the year. It's also a good time for new parents to think about the financial side of their parental responsibilities.
“Becoming a parent is an exciting time for couples, but it's also a stressful one thanks to sleepless nights and the endless costs that come with caring for a baby,” Woroch says. “In fact, the latest Cost of Raising a Child research from the USDA found that the average middle-income family spends roughly $12,300 to $13,900 on child-related expenses each year.”
“Given the current economic issues caused by the pandemic with 59% of U.S. households experiencing a reduction in income since March, it's more important for families to carefully craft a budget, anticipate all potential expenses and mind their spending.”
To get that task accomplished, Woroch advises young parents to avoid five common money mistakes new parents make. She also provides some action tips to bypass money mistakes and keep moving forward, from a financial household management point of view.
Mistake 1: Going bigger. Upgrading your home and car to accommodate baby seems practical, but it adds an unnecessary financial burden during an already stressful time.
“The reality is, babies don’t need much space,” Woroch says. “Since there are many new expenses that come with caring for an infant like diapers and wipes and unexpected healthcare bills, it’s best to settle into your new life first and adjust to the new budget before making major upgrades.”
Mistake 2: Underestimating childcare costs. Parents are looking at dishing out $565 per week for a nanny and $215 for a daycare center, as reported by Care.com.
“But beyond the working day, parents overlook the additional care they may need on nights in weekends which can add up given the average hourly rate for a babysitter is around $15,” she adds. “To save, set up a babysitting exchange with other families in your neighborhood or with relatives who have children around the same age.”
Mistake 3: Ignoring life insurance and estate planning needs. No one wants to think about death when they bring a new life into the world, but life-insurance and estate plans provide financial safety nets for your family.
“When looking into term life insurance, consider getting 5 to 10 times your annual salary in coverage. For example, a healthy 35-year-old woman can buy a 20-year, $500,000 term life insurance policy for about $20 per month,” Woroch notes. “Plus, you can set it up right from home through sites like Haven Life, which is a life insurance agency backed by MassMutual, makes it simple to buy affordable term life insurance online.”
Mistake 4: Overspending on gadgets. New parents get wrapped up in shopping for new clothing and infant gear, hoping these gadgets make caring for baby easier but many of these items are used for a short period of time so it’s better to borrow or buy used.
“For all those essentials you can’t avoid buying like a car seat or crib, look for deals online first. For example, sites like CouponFollow.com offer online coupons to hundreds of popular retailers. You can also snag sales like 20% off select baby gear from Britax at BuyBabyBuy.com,” Woroch says.
Mistake 5: Postponing college savings. College planning may be the last thing from your mind when you are knee-deep in diapers, but the earlier you start, the easier it will be to meet the target savings goal.
“The longer you wait to start saving, the more money you will need to put away each month,” she adds. “Remember, saving anything is better than nothing even if it’s just $20 a month. Plus, opening a 529 College Savings Plan helps your savings grow like a retirement fund."
"In lieu of toys and other gifts, ask family and friends to contribute to this college fund to build it up faster," Woroch notes.