As a first-time parent, there are a lot of new responsibilities on your plate. You’ve welcomed a new life into this world and now you’re responsible for raising this tiny human into a smart, kind, caring, and successful member of society.
Days get busy with feedings and naps, quickly followed by swim lessons, school, play dates, and team sports. Before you know it, your little bundle of joy is all grown up. All that can happen in what seems like a blink of an eye.
As you begin your parenting journey, it’s important to actively plan for your financial future—to benefit both you, your spouse, and your child. But sometimes, all of the hustle and bustle of the day-to-day can overwhelm even the best of intentions.
Consider that the average cost of raising a child in the U.S. , until the age of 17, is $233,610, and that doesn’t include college tuition.
Thoughtful financial planning can help you meet your financial goals and give your kids the support they need. To make sure you’re starting off on the right foot, we want you to be aware of these common money mistakes first-time parents make and how you can avoid them.
Overspending on Baby Gear
As a first-time parent, you likely have quite a bit of work to do in advance of the baby’s arrival. You may need to create and furnish a nursery for your child, stock up on diapers, bottles, clothes, toys, and so much more.
As you’re setting up your new life with baby it can feel like buying everything brand-new is the only option, but that can be costly. You might consider taking advantage of used or gifted items. You can buy a lot of items secondhand at a lower cost through online marketplaces or at brick-and-mortar used and consignment stores.
And if you have friends, family, or neighbors that already have children, they may be looking to unload some of the gear their children no longer use. Things like cribs, playpens, toys, books, and clothes are all great for passing down.
If they’re still in good shape and up to current safety standards, your child will enjoy them just as much as something new—and you could save a decent chunk of change.
Living Without a Safety Net
As a new parent, you’re about to incur all sorts of costs you may have never thought of, and failing to prepare for unexpected situations could leave you in a pickle.
Now that you have a child, having an emergency fund is even more important. You’re now responsible for all of their needs, and there may be unplanned costs that pop up along the way. Preparing for them now can set you up for financial success down the road.
Saving for an emergency is a process and it’s okay to start small—even just $25 a week will add up over time. Some people opt to store their emergency fund in a savings or checking account, which can be accessed quickly in a pinch.
Another option is an account that offers a high interest rate, like SoFi Money. You’ll be able to access your money easily and with no fees, should a financial emergency strike.
Failing to Account for Future Costs
Before you had children, maybe you cooked the majority of your meals at home, did all of the house cleaning weekly, prepped meals, and meticulously shopped for groceries to stay on budget.
The first few months with a newborn can be quite a blur, complete with sleep-deprived nights and exhaustion. You may not have as much time to cook and clean, or keep up with the other activities you were handling before the birth of your child.
You could hire a housekeeper, get take-out meals, enroll in a subscription meal-delivery service, or have your groceries delivered every week—but all of those conveniences come at an added cost. Padding your budget and planning for an uptick in expenses can help prepare you for the extra expenses.
And as your child grows, there can be more and more new costs. Maybe they need braces or want to participate in a sports club, or they want to enroll in extracurricular art classes. American families will spend, on average, $500 to $1,000 per season on sports or extracurricular activities for each of their children. Thinking about these costs now can make planning for them easier.
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Putting Off Saving for Retirement
Another financial mistake new parents make is failing to save for retirement. It can be easy to prioritize your child’s needs over your own, but putting off saving for retirement isn’t doing anybody any favors.
When it comes down to it, you may not want to fall behind on your retirement savings in order to put your child through college. Instead, you could consider prioritizing retirement while helping your child as much as possible and educating them on smart practices for student loan borrowing.
For retirement saving, one way to start is by enrolling in your company’s 401(k) if one is offered. Some employers will match your contribution, up to a certain percentage, and you’ll be able to have your contribution taken directly from your paycheck. If your employer doesn’t offer a 401(k), you could open an IRA instead. It’s never too early to start saving for retirement.
Not Saving for College
Another financial mistake parents may make is not saving for college. As we mentioned earlier, you may not want to focus solely on saving your children’s tuition and let retirement planning fall by the wayside. But that doesn’t necessarily mean you can’t save for both. The cost of higher education is at an all-time high and student loans are being issued at unprecedented rates.
Saving for your child’s education can be impactful for their financial success, especially since current projections estimate that children born today could end up paying four times the current tuition price.
While a standard savings account may seem like the easy choice, there are a few other options available that are designed to help you save for your child’s education, and may be worth considering.
One option is a 529 college savings plan , which is offered in more than 30 states. Generally, you invest after-tax money into the plan. Then, you’re allowed to withdraw the funds tax-free for education expenses, as long as all requirements are met. The downside of this type of plan is that if your child doesn’t end up going to college, you may face penalties or fees when you withdraw the funds.
A Roth IRA could also be used to pay for college. Like a 529 plan, you contribute after-tax money, which can then be withdrawn later. It should be noted, however, that the primary purpose of a Roth IRA is saving for retirement.
You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA if you’re under 59 years of age. Check with a qualified financial professional or tax advisor before making any big decisions on a Roth IRA withdrawal.
Finally, when considering college savings options, an Education Savings Account (ESA) may also be worth looking into. An ESA is an investment account wherein the funds can be used not just for college education, but also for your child’s elementary, middle, or high school expenses. Those who qualify for an ESA can contribute up to $2,000 of their after-tax income each year.
Missing out on Tax Breaks
When you have a child, you may be eligible for certain tax benefits . There’s also an Adoption Credit , which offers tax incentives to cover the cost incurred if you adopted a child. Consult a tax professional to see if you qualify.
Not Teaching Your Kids about Money
If kids aren’t taught the basics of financial literacy at a young age, they may struggle to balance a checkbook, make a budget, or save money when they’re older. Helping your children learn what it means to manage money by teaching them to save, share, and spend their earnings can help set them up for financial success in the future.
Start by introducing your children to money at a young age—kids love to play store, and by exchanging goods for money they’re already beginning to understand the basic principles of commerce. As they get older, you may want to try giving them an allowance in exchange for their chores.
You could even have them make a budget with their earnings—you could encourage them to spend, save, and donate. Little life lessons can have a big impact on the financial health of your children.
Keeping Your Financial Future on Track
If you’re getting ready to start a family and aren’t sure how to plan out your finances, consider SoFi Relay. SoFi Relay tracks all of your money, all in one place—at no cost—so you can stay on pace to try and hit your goals.
With SoFi Relay, you also have access to complimentary, personalized advice from a financial planner. Our planners can walk you through how to manage your debt, plan for children or retirement, or they can do a quick checkup to see if your finances are on track for your goals.
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The information provided is not meant to provide investment, tax or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory and automated services offered through SoFi Wealth LLC. An SEC registered investment advisor. SoFi Securities LLC, member FINRA / SIPC