Articles, Money Mistakes

Attention, New Parents – Don’t Make These 15 Financial Mistakes

Written By: Christina Lee
Reviewed by: Mike Reyes
Last Updated August 11, 2022

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a happy family with kids hoping to avoid financial mistakes

First and foremost, congratulations on your first child! Being a new parent is such an honor! I understand if you’re worried about making financial mistakes. Because, now, as a new parent, you’ll have the critical responsibility of caring for another human being. Like any gift you receive, a child is something to not only care for but also cherish forever.

Though, you might have questions or concerns about how to be financially stable when raising a child. You’re not alone. Many new parents have this same concern as you do. According to a recent report, as of July 17, 2024, the average cost of raising one child to age 17 is more than $233,000, nearly $14,000 per year. More concerning, The Bump suggests that the 3 financial concerns that new parents have are the following:

  • How will they afford their child?
  • How will they be able to pay for their child’s college? AND,
  • What if something happens to the parents themselves?

To make matters worse, finances might or might not get a time of day, since most new parents will focus more on functioning on little sleep and tending to their child’s never-ending needs. While that’s all understandable, it’s still essential to have a plan for your finances, even if you’re a new parent.

The good news is, that we’re here to help you with your finances, as you continue to tackle being a new parent! In this essential guide, we’ll show you 15 of the most common mistakes that many new parents make when it comes to their finances, and how you can avoid them. Let’s dive right in! 

Parents, Don’t Make These Financial Mistakes!

1. Not Having A Budget

First, having a budget is a must. Even if you’re well off financially, you should still consider finances. 

Now, keep in mind that having children isn’t the same as living on your own. “That means that whatever activities, for example, you’d use to do pre-baby would no longer be available to you after you have your baby. Suppose you would go to the bar and spend money on drinks. Or, you might have had the habit of saving money pre-baby. Now, with a new addition to the family, you find yourself spending money on your bundle of joy. That’s normal.

No matter the case, you’ll need to have a plan when it comes to budgeting. Budgeting helps you see what you need and don’t need. Rather than spending blindly, budgeting helps you be smarter with your money. Think about the types of groceries that you’ll need for both you and your baby, along with the bills, doctor visits, transportation needs, and so on that you and your baby will need. This way, you and your baby can be ready for any other expenses that might spring upon you.

Speaking of any other expenses that might spring up out of nowhere, this leads to the second point…

2. Not Having A Safety Net

Yes, having a safety net is essential.

Sometimes, life might throw some curveballs at you without warning. This is especially common for new parents since they’re still new to the game.

Here’s one example: Suppose you have a car to run errands with your child in tow. What would happen if your car broke down, or you got a flat tire? Would you have the money to fix your car? Would you have a spare tire on standby?

Here’s another example: No new parent wants to see their child get sick or hurt. But what if your child gets sick or injured? Would you be able to afford their medical bills? Their doctor visits? Their prescribed medications?

That’s why it’s essential to set up an emergency fund. Essentially, you set aside money every time you get paid (if you have a job), or if you receive money as gifts, you can set that aside for emergencies. This way, you’ll create a safety net for emergencies like medical or repair crises.

3. Spending Too Much On Baby Things

Who wouldn’t want to spoil their first child? In fact, as a first-time parent, you would want to treat your child to many things like toys, clothes, and other nice things. After all, you only want the best for your bundle of joy.

However, while treating your child with toys and goodies is great, it’s still important to be wise about your spending habits. Essentially, you have to think about the things that your baby will need, including:

  • Food
  • Clothes, shoes, and diapers
  • Toys that are effective in entertaining your child
  • Doctor visits and medicine, etc.

Plus, you can have hand-me-downs for things like clothes, toys, etc. (If you have a big family, this can be an excellent thing for you!) You can also look to yard sales and thrift stores to save money on things like baby clothes. 

4. Spending Too Little On Baby Things

Now, just because you’d want to save money, don’t think you should deprive your child of having toys, food, and other necessities. It’s essential to ensure that your child is well-fed, well-entertain, and well-off. That’s why you should set a reasonable budget for how much to spend on your child and how much to save. Just as long as you’re not cheating your child out of certain things, you should be okay on the financial part.

Remember the essentials (as mentioned in the previous point):

  • Food
  • Clothes, shoes, and diapers
  • Toys that are effective in entertaining your child
  • Doctor visits and medicine

… and so on.

Don’t deprive your child, but still, be wise about your money.

5. Not Saving For Retirement

One of these days, you’ll need to retire from your job. While retirement can be a new phase in your life, you’ll need to be ready before that day comes. That means now is the time to start saving for retirement if you haven’t done so already. (Yes, right now!)

But how can you save for retirement? Well, there are a few options:

While saving for your child’s college fund is just as important (which we will cover later in this guide), you would still need to think about squirreling away money for retirement. You can if you need to borrow money from your child’s tuition. Plus, if your employer offers 401(k), don’t hesitate to sign up for it. Whatever you can do now to save for retirement, do it now! Otherwise, you won’t have a nest egg to be cushioned within your golden years.

6. Not Looking At Eligible Tax Savings

Believe it or not, there should be tax breaks and savings if you’re a parent. There are tax breaks for almost any situation if you do your homework well.

With that said, consider the following tax exemptions:

  • The popular personal exemption of $3,950 per child
  • The child tax credit of up to $3,000 for each child, depending on how much you make
  • The child and dependent-care credit cover up to 35% of the cost of things daycare, pre-K, day camp, etc. 
  • The adoption tax credit (up to $14,300 to cover things like fees, court costs, travel expenses, etc.), AND
  • Tuition for special-needs students (provided that the tuition and other unreimbursed medical expenses exceed 10% of your adjusted gross income)

So, you see, it pays to do your homework and find tax breaks that you’re eligible for. The Internal Revenue Service (IRS) has a page where you can check your family’s eligibility for tax breaks, credits, or deductions.

7. Not Looking Into Life Insurance

Whether you have children or not, life insurance is vital for everyone. Having life insurance is essential because if you, your spouse, or both of you die for some reason or another, it’s crucial for your dependents – your beneficiaries – to be provided for when you’re gone. 

One option is to get some life insurance coverage through your employer. However, you can never rely too heavily on it, because that’s not enough to cover everything if something happens to you. Plus, if you get laid off or get fired, you’ll lose your employer-provided insurance.

So, what’s the recommended amount you need as part of your life insurance plan? 

“It’s important to have at least a $500,000 policy”, says Jane Orly, a business writer at UK Writings – and that’s a bare-bones minimum. In addition, you’ll need to invest in a group policy rather than an individual one because the former option is much cheaper than the latter. 

As for when your children grow up, you’ll need to consider keeping them insured until they are through their schooling and no longer need your financial support. Once your children grow up, have paying jobs, and live independently, you’ll no longer need them to have them insured on your plan. You can always recommend your insurance company to them if you’ve had good experiences with it.

Plus, consider that when your dependents are through college and don’t need financial support, you can opt to convert the insurance policy to a permanent whole life or variable life one. By doing so, you can decide later if whether or not you want lifelong coverage.

8. Not Looking At Disability Insurance

It can be devastating for your child to grow up with a disability or be born with one. However, that doesn’t mean that you can’t find disability insurance for them. Even if you’re financially well off, you should still consider getting disability insurance. Like anything else in life, debilitating injuries can lead to disability, which can cost you thousands of dollars if not covered by insurance. 

There are a few ways to get disability insurance:

  • If your place of employment offers insurance, then sign up for it. Once you satisfy its conditions, you’ll be covered by their insurance.
  • Look into different insurances and plans, and see which is the right fit for you and your child, along with how much it’ll cost.

If you’ve been out of work for a while, research policies that can help you while you look for another job

9. Signing Your Child Up For A Savings Account

Like anyone else, your child will eventually learn to save money. However, don’t do it prematurely when opening a savings account for your child. While it might be tempting to open a custodial savings account after a relative sends your child a check or money, it’s a big no-no. Why? Because if you need money right away, you can’t access it. Plus, having a savings account for your child can make you ineligible for financial aid. 

So, how can you ensure that your child has a good nest egg?

Opt for a 529 plan instead. By putting your child’s money in a 529 college savings plan, the money grows tax-free as long as you use it toward eligible college expenses. Be sure to read up on your bank/institution’s rules and policies as you set up a 529 plan for your child.

10. Ignoring A Healthcare FSA

According to, a flexible spending account (FSA) is where you put money into it, and then use it to pay for certain out-of-pocket healthcare costs while not having to pay taxes on it. 

Ignoring this beneficial account can cost you in the long run. Without an FSA, you’ll risk paying for doctor visits, bills, etc. out of pocket, which can take a toll on your wallet. So, why not save big by signing up for it? 

All you have to do is take into account the following: 

  • Your doctor expenses
  • Dental costs
  • Your prescription costs
  • Vision, etc.

Next, when applying for an FSA, allocate that amount (usually up to the annual FSA maximum of $2,750 per year) at open enrollment. By allocating said amount, that can save you between 20 and 50% on eligible health and medical services. 

However, if you’re in a high-deductible medical plan, go for a Health Savings Account (HSA). An HAS lets you contribute up to $7,200 (family) or $3,600 (individual) tax-free. Afterward, you can invest in the indefinite funds if you don’t need them immediately.

11. Not Having The “Money Talk” With Your Child

One of these days, you’ll need to talk to your child about money. Otherwise, how else would your child:

  • Learn to save money?
  • Learn to spend their money wisely?
  • Learn to use and balance a checkbook?
  • Learn to save for college?
  • Learn to set up budgets, etc.

As you can see, financial literacy is important to have. And, believe it or not, kids are never too young to learn the basics of financial literacy at a young age. 

For example, kids love role-playing and using their imaginations. If they love to play store, they already understand financial literacy basics.

And, once your child grows older, you can introduce them to allowances in exchange for completion of chores, homework, or other responsibilities.

12. No College Fund

College is a great thing, especially for your children. Now, while college can be an exciting experience for your child, you might be worried about how you’ll be able to afford it. If you haven’t already been saving money for the college fund, then it’s normal to worry. Therefore, the best time to consider your child’s college venture is when they’re born.

Besides the 529 plan that we’ve discussed earlier, there are another couple of attractive tax-free college savings options to consider for your child:

  • State-sponsored plans (tax-free as long as the money is used for college costs)
  • Plans managed by a brokerage or mutual fund company (in league with state-sponsored plans) 
  • Plans that let your child attend any schools of their choosing
  • Coverdell education savings accounts (which lets you contribute up to $2,000 a year in tax-free accounts, though has limits of $220,000 for couples filing jointly and $110,000 for singles)

Some of these plans let you invest money in a portfolio of stocks and bonds. In turn, these stocks and bonds would gradually get more conservative as your child reaches the age where they can go to college or university.

13. Buying Life Insurance Willy-Nilly

While life insurance is desirable by today’s standards, it’s still important to do your research ahead of time. In fact, you wouldn’t want to be stuck with an insurance policy that won’t help you and your child in the slightest or would cost you a lot for the premium. 

Therefore, it’s essential to look for insurance that can help you in the following ways:

  • It’ll cover doctor visits and medical bills.
  • It’ll cover things like food and other necessities.
  • It’ll cover child care needs, and so on.

Also, don’t be tempted to buy a lifetime policy that can be costly if your child develops a medical condition later in life. Buying a policy for less now will ensure your child is always insured. 

Remember: The last thing you want is to be stuck with an insurance policy that won’t help you or your child.

14. Ignoring Childcare

While giving birth can be costly by itself, so is childcare. Nowadays, daycare centers can cost an arm and a leg, in order for your child to go there for just one week. Plus, babysitters can be costly, even if you hire them to watch your child for a day.

The good news is, when it comes to childcare, there ARE options. You should research which childcare options are suitable for you depending on your income, schedule, and life situations. Would you rather pay for a daycare center to look after your child? Would you instead hire a babysitter to watch your child? Would you rather have a relative care for your child? Or, would you instead devote your time and energy to childcare? Whatever you choose for childcare is up to you. 

Plus, think about why you need childcare:

  • Are you working full-time or part-time at a job?
  • Are you looking for work?
  • Are you working remotely and need time to work?
  • Do you need a break from childcare every so often?

By learning how and why you need childcare, you’ll make the right choice when choosing what’s best for you and your child.

Also, look into parental leave in your place of employment. Just keep in mind that while some companies offer paid parental and/or maternity leave, others won’t.  Therefore, you must talk to your employer about your situation and how you would like to better care for your child. Now, while the unpaid parental leave is bare-minimum for your need to have childcare, you should still look for other options if you can’t get paid while caring for your child. 

15. Make Sacrifices

Finally, it’s time to talk about making sacrifices. As much as it sounds hard to do, it’s still a fact.

Yes, as new parents, you’ll be exposed to many changes in your life. For example, you might buy more Pampers and baby formula than recreational things like alcohol and video games. That’s normal for new parents.

You’ll need to make sacrifices to afford things for your baby like clothes, food, medical expenses, and so on. And, just because you’re sacrificing one thing doesn’t mean you’ll need to do it forever. Though, if you manage to give up something (i.e., alcohol) for your child, that might be a good thing.

Plus, when you look to make sacrifices, you’ll be able to teach your child to follow suit. In this way, they would learn how life works and how they can work towards a goal. Again, while giving something up may seem hard to do, that’s life.


So, there you have it!

As you can see, being a new parent doesn’t have to be problematic or expensive. Many of these mistakes can be avoided by NOT jeopardizing your finances. While not everyone is perfect regarding finances, it’s still important to look to the future, especially when it comes to your bundle of joy.

By learning from these 15 common mistakes in new parenting and finances, you’ll not only be smarter with your money but also provide the best for your child. 

Good luck, new parents! 

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