The prospect of new parents is exciting, but it’s also stressful, due to the sleepless nights and the never-ending expenses associated with caring for a child. The latest research from the USDA found that the average middle-income family spends about $12,300 to $13,900 on child-related expenses annually.
The Street’s recent article entitled “Biggest Money Mistakes New Parents Make” says that with the current economic issues from the coronavirus pandemic, 59% of U.S. households are seeing a reduction in income since March. That’s why it’s more important for families to carefully create a budget, anticipate all potential expenses and watch their spending. To do this, young parents should avoid five common money mistakes made by new parents.
- Getting Big. Upgrading your home and car for a new baby seems practical. However, this adds an unnecessary financial burden during an already tough time. Little babies don’t require much space. Because there are many new expenses in caring for an infant, such as diapers and unanticipated medical bills, try to settle into your new life first and adjust to the new budget prior to making major upgrades.
- Lowballing Childcare Costs. Parents can pay about $565 per week for a nanny and $215 for a daycare center says Care.com. However, in addition to the working day, parents can miss planning for the additional care they may need on nights and weekends. This can add up, with the average hourly rate for a babysitter at $15. You can save by setting up a babysitting exchange with other families in your neighborhood or with relatives who have children around the same age.
- No life insurance or estate planning. It’s not a fun topic, but life insurance and estate plans provide financial safety nets for your family. Talk to an experienced estate planning attorney, and when looking into term life insurance, try to buy five to 10 times your annual salary in coverage.
- Too much spending on gadgets. New parents can go crazy shopping for new clothing and infant gear, thinking that these things will make caring for baby easier. However, many of these items are only used for a short while, so it’s better to borrow or buy used. For essentials, you can’t avoid buying items like a car seat or crib, but search for deals online first.
- Delaying Saving for College. College is way off but the earlier you start saving, the easier it will be to meet your savings goal. The longer you delay beginning to save, the more money you’ll need to put away each month. Saving a little bit is better than nothing, even if it’s just $20 a month. You can also start a 529 College Savings Plan to help your savings grow like a retirement fund.
Reference: The Street (Sep. 9, 2020) “Biggest Money Mistakes New Parents Make”
Suggested Key Terms: Estate Planning Lawyer, Probate Attorney, 529 Education Savings Plan, Tax Planning, Financial Planning