Consumer Savings Tips

5 Money Mistakes New Parents Make (And How to Avoid Them)

Having a baby is suppose to be a joyous moment, but it can quickly turn into a stressful one—both emotionally and financially. Even with the best intentions, new parents often make mistakes when it comes to budgeting and spending. Considering the average U.S. family shells out roughly $12,000 on child-related expenses in their baby’s first year of life alone (according to a 2010 USDA report), it’s important to plan ahead and learn options for saving money.

Here’s a look at five common money mistakes new parents make and how to avoid them.

1. Overlooking Potential Expenses.
Budgeting for the basics like diapers and wipes is a no brainer, but there are less obvious and unexpected expenses that can send budgets soaring such as formula for those who planned to nurse but are having difficulty (approx. $100 per month), takeout expenses for those days there’s no time to cook, parent-bonding classes, trips to the ER when baby is sick in the middle of the night, extra childcare for afterwork and weekend events, plus much more. While it’s impossible to predict these unexpected expenses, it’s important to have a contingency plan and give your budget cushion room  for potential extras. Planning ahead can also key in controlling spending. For instance, prepare freezer-friendly meals that are easy to reheat, research free activity classes through nonprofits or your local library, exchange babysitting services with friends and family, and look for coupons to save on baby essentials.

2. Overbuying Baby Gear.
There are endless baby gadgets that retailers bombard expectant parents with. Mom and dad-to-be often buy more with the hope that these gizmos will make their lives easier.  However, baby just needs a few essentials like onesies, diapers, bottles, and blankets. That’s why it’s important to set a limit on both necessary and optional buys, then look for ways to cut costs. Ask friends and family who recently had children to borrow goods and search for used options online or at a local consignment shop. Shop sales and look for clearance products such as discontinued models that you can snag for cheap. Lastly, don’t fall into the trap of thinking you need a bigger car, a bigger house and a Pinterest-perfect nursery when you find out baby is on the way. Inflating your budget before baby arrives will only lead to further stress!

3. Skimping on Saving.
New parents get wrapped up in the joys of expecting and forget to look ahead at the looming financial adjustments they will need to make. With new expenses and budgets, mom and dad may put saving on the side but it’s not smart to skimp on retirement savings. After all, do you really want your child to have to support you in old age? When it comes to college savings, start small and set it up to automatically increase the contribution with every birthday. You can also request cash gifts for birthdays and other holidays to put toward the college fund.

4. Dismissing Life Insurance.
Buying a life-insurance policy is one of the most important things anyone can do to protect their family financially. Costs of a plan will vary significantly depending on each individual and how much coverage is needed, but it’s recommended that parents look for a plan that covers at least six to eight times the amount of their gross annual salary to cover the anticipated dependent. For example, a 35-year-old individual in good health can expect to pay around $36 per month for a 20-year term policy with $500,000 worth of coverage, according to this chart.

5. Mismanaged Bills and Late Fees.
When baby arrives, there’s hardly any time to do anything else but change, feed and sleep (and sleep is only if you’re one of the lucky ones!). Unfortunately, the fog that new parents experience often results in missed bills and excessive late fees.  To avoid spending money on useless fees, automate bill payments. If a late fee was assessed on your account, call the provider to negotiate. Most will understand the situation and can often waive the penalty as a courtesy.

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