The Biggest Money Mistakes New Parents Make


Raising a child can be extremely rewarding, but it can have financial consequences. The United States Department of Agriculture estimates the average cost of raising a child from birth to 18 at $233,610, not including what parents may also spend on college. Creating a solid financial plan can help new parents avoid some potentially costly mistakes in the short and long term.

Key points to remember

  • Some of the biggest financial mistakes new parents can make include overspending on baby items, foregoing life insurance, and not getting a head start on college savings.
  • Creating a baby budget can help parents control spending and avoid unnecessary debt.
  • Buying life insurance can create a financial safety net for parents, and it’s usually more affordable for young, healthy parents.
  • Talking to a financial advisor can help new parents develop a plan to manage their family’s financial health.

Mistake #1: Not creating a budget for a newborn

One of the most dangerous financial traps future parents can fall into is underestimating the costs of having a baby. This includes costs incurred before the birth, such as visits to the doctor and new baby equipment, birth and delivery costs themselves, as well as expenses that follow, such as nappies and first aid items. necessity for baby.

Budget planning for a baby can help create a realistic picture of what it costs to have and raise a child. At a minimum, a basic baby budget should include:

  • Co-payment and doctor visits (prenatal and postnatal)
  • Estimation of birth and delivery costs
  • Baby gear including clothing, furniture, car seats, etc.
  • Babysitting, if needed
  • Diapers, wipes and other baby essentials
  • Infant formula and bottles, if applicable
  • Breast pump and milk storage bags, if applicable

It is also important to consider how having a baby may affect household income. Two-income households could lose one of those incomes if a parent chooses to stay home with the baby. For those who are single parents, having a baby may require reconfiguring your work hours or even changing jobs, which could result in smaller paychecks.


Although the Family Medical Leave Act (FMLA) allows up to 12 weeks of parental leave for pregnancy or childbirth, it is unpaid unless you are a federal employee.

Mistake #2: Underestimating childcare costs

The decision to return to work after the birth of a child can be motivated by different reasons. Some parents cannot afford to lose a source of income while others may be motivated by the interest of pursuing their careers. Either way, it raises the question of who will look after their child during working hours.

There are different options, including daycare, hiring a nanny, or asking friends and family for help. Each has its advantages and disadvantages, and its costs. According to Child Care Aware of America, the average annual cost of child care is $10,174, which is more than 10% of the median income for two-parent families and 35% of the median income for single-parent families.

Underestimating the cost of child care could be problematic when budgeting after the birth of a child. This could force parents to make tough decisions about their spending or even their ability to return to work. Researching different childcare options and their costs during pregnancy can help parents find a viable and affordable solution.


Child care voucher programs can help make child care more affordable for families who qualify based on their income and financial resources.

Mistake #3: Upgrade your home

When you’re expanding a family, it’s natural to assume that a larger home is needed. But upgrading your home could be a mistake if it means taking on a larger mortgage payment that ends up taxing your budget.

Before buying a larger home, it’s important to consider your overall financial situation. If you’re paying off student loans or other debts in addition to a mortgage, for example, you may not have much leeway to increase your loan repayment. Changes in income, expected or unexpected, could also affect your ability to pay off a larger mortgage.

If you are renting, however, you might consider buying a house. It might make sense, if it helps you save money on housing costs. You must also have enough savings to cover your down payment and closing costs. Running the numbers with a mortgage affordability calculator can help you decide if the time is right to switch from renting to owning.

Mistake #4: Foregoing available tax breaks

Having a child can provide certain benefits at tax time for parents who qualify for certain tax credits or deductions. Some of the tax benefits available to new parents include:

  • Labor income tax credit. The Earned Income Tax Credit (EITC) is designed for low- and middle-income families with one or more dependent children. The credit reduces the amount of tax owing on a dollar-for-dollar basis. Parents must meet IRS income guidelines to claim this credit.
  • Child tax credit. The Child Tax Credit is available to parents who have an eligible dependent child and meet the annual household income guidelines. This credit also reduces your taxes on a dollar-for-dollar basis. You may be able to claim this credit even if you don’t normally file a tax return.
  • Credit for child care and dependent care. The Child Care and Dependent Care Credit is for parents who pay an eligible entity or individual for child care so they can work or look for work. You can claim expenses not only for child care, but also for babysitters, day camps, and before and after school programs. For the 2021 tax year, parents could deduct 50% of up to $8,000 of expenses for one child or $16,000 of expenses for two or more children.

The child care and dependent care credit is not available to married parents who file separate returns.

Mistake #5: Neglecting long-term planning

Financial planning is an ongoing process, but it can be easy to put some goals on hold when a new baby arrives. However, it is important for new parents to keep an eye on the big picture while caring for their child.

For example, a comprehensive financial plan typically includes:

  • Saving for retirement. New parents who have access to a 401(k) at work or an Individual Retirement Account (IRA) may want to consider how they can continue to contribute to these accounts if welcoming a baby involves budget changes.
  • Save for emergencies. An emergency fund can help cover unexpected expenses, such as car repairs or job loss. The most common rule of thumb for emergency funds is to save three to six months of expenses, but new parents may consider increasing this amount, especially if only one parent plans to work.
  • Saving for college. College is still years away when you have a newborn, but it’s never too early to start saving. Opening a 529 college savings account can allow parents to enjoy tax-deferred growth on the amounts they contribute.
  • Life insurance. A life insurance policy can provide a death benefit to your loved ones should something happen to you. When a new baby arrives, it can be a good time for parents to consider whether their current coverage is adequate, or to purchase life insurance if they don’t already have it.
  • Estate planning. An estate plan can include the basics, like a will and a life insurance policy, but it can also include a trust, power of attorney, and advance health care directive. These types of documents can help ensure that your family and assets are protected if something happens to you.

How much money should you have saved before a baby arrived?

The amount of money you should have saved before a baby arrived depends in part on your anticipated expenses. For example, you may need to have money to pay the doctor or hospital for birth and delivery costs not covered by insurance. You may also want to put money aside to compensate for any loss of income during your parental leave. And it is always recommended to have an emergency fund in place to cover any unexpected expenses that may arise.

How to survive financially after having a baby?

Surviving financially after the birth of a baby starts with planning well before birth. Some of the best things parents can do to prepare financially for a baby include budgeting for a newborn, reviewing life insurance coverage, building emergency savings , automating investments in retirement accounts and paying off as much of their debt as possible.

What benefits do new parents get?

The types of financial benefits new parents are entitled to may depend on where they seek help and their general circumstances. Employers can offer benefits such as paid parental leave to allow parents to enjoy their new baby without having to worry about lost income. Low-income families may qualify for financial assistance programs like Medicaid to help cover health costs or Supplemental Nutrition Assistance Program (SNAP) benefits to help pay for food.

The essential

Planning a new baby means buying the things you need and preparing yourself emotionally, but there’s also a financial element to consider. Getting off to a good start financially means less stress for new parents who may already feel harassed by the demands of caring for a newborn. Reviewing your financial plan annually can help ensure that you stay on track to achieve your goals as your family grows and goes through different life stages.


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