September is the most common birth month and with so many couples anticipating the arrival of their newest family member during uncertain financial times, it’s more important than ever to talk about budgeting for baby. The latest USDA’s Cost of Raising a Child report found that the average middle income family spends roughly $12,300 to $13,900 on child-related expenses each year. Knowing what expenses are essential and where to cut back can be confusing as a new parent.
Money-Saving Expert, Andrea Woroch has the 5 common money mistakes new parents make with tips on how to avoid them.
Mistake 1: Buying a bigger home or car. Upgrading your home and car to accommodate baby seems practical, but it adds an unnecessary financial burden during an already stressful time. Babies don’t need much space so don’t make any big changes until after you have time to adjust to your new life and all the new expenses that come with your little one.
Mistake 2: Underestimating childcare costs. Parents are looking at dishing out $565 per week for a nanny and $215 for a day care center, as reported by Care.com. Beyond the working day though, you may need care for nights and weekends so make sure to estimate this into your overall budget. Setting up a baby exchange with other families with young kids is an easy way to help each other save on this extra babysitting cost.
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, aim for 5 to 10 times your annual salary in coverage. Setting up a Will is another important item you can tackle online in a few minutes at sites like TrustandWill.com, which offers step by step instructions and costs for $89, including important documents like power of attorney, health directives and guardianship for your new bundle of joy.
Mistake 4: Overspending on gear and clothing. New parents get wrapped up in buying cute baby clothing and infant gadgets hoping it makes life easier, but these items are used for a short period of time. Instead of buying brand new, ask family and friends who recently had babies if you could borrow a swing or baby carrier — or shop local listings. You can also trade in baby clothing for larger sizes at SwoondleSociety.com, a member marketplace for trading kid’s clothing.
Mistake 5: Postponing college savings. Sending your baby your little one to college is likely the furthest thing from your mind when you are knee deep in diapers, but the earlier you start, the less you will need to put away each month. Open a 529 College Savings Plan which invests money like a retirement fund to help it grow faster thanks to compounded interest withdrawals are tax free. In lieu of toys and other gifts, ask family and friends to contribute to this college fund to build it up faster.