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Updated: Mar 14, 2024

5 Money Mistakes New Parents Make

For new parents, having a child is an overwhelming experience. It's also costly. Here are 5 money lies and mistakes new parents should avoid.
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Having a child is an overwhelming and exhilarating experience.

There’s nothing like holding your new baby in your arms for the first time.

Being a new parent changes you.

But with sleep deprivation, countless baby photos, and hectic schedules, new parents can sometimes lose track of their finances or make unwise decisions with their money.

Don’t let that happen to you!

Having a baby isn’t cheap -- everyone knows that.

According to the most recent Cost of Raising a Child report from the U.S. Department of Agriculture, a middle-income family with a child born in can expect to spend about $300k for food, shelter, and other necessities associated with child-rearing expenses over the next 17 years.

Costs can quickly spiral out of control if new parents aren’t cautious with their finances -- especially in the first few years of a child’s life.

Unfortunately, many new parents get caught up in buying the biggest and shiniest items for their newborn.

They lose sight of their own long-term financial goals in the midst of taking care of their little one.

And some parents just lie to themselves about their financial situation to avoid reality.

Here are five lies that new parents tell themselves that you must avoid at all costs:

1. I Need the Best for My Child

Mommy and daddy dearest, all parents want the best for their children.

But guess what?

The best doesn’t have to include designer initials, the most expensive brands, or top-of-the-line cribs and strollers. 

And you most certainly don’t need a pacifier that’s lined in Swarovski crystal.

It’s natural for new parents to want the absolute best for their kids, but don’t let your newborn cloud your sound financial judgment.

Government data shows that the average middle-income family will spend roughly $10,000 on child-related expenses in the first two years of life and $8,000 for a second child.

And some critics say those figures are too low.

You don’t need to add frivolous expenses to your bills.

Providing the best for your kids means putting a roof over their heads, feeding them, nurturing them, caring for them -- things you can do without breaking the bank.

2. I Don’t Need to Save for Retirement Now

Is it because you’re not getting older?

Have you somehow managed to freeze time?

Parents are in a tricky situation because as college expenses like tuition rise and 401(k)s shrink, it can be difficult to save for retirement.

While it’s commendable that some parents want their child to graduate college without a ton of debt, saving for your kid’s education shouldn’t come at the expense of saving for your own retirement.

Unfortunately, most people are not saving enough to retire.

Data from the Employee Benefit Research Institute show that just 18 percent of workers are very confident that they will have enough money for a comfortable retirement.

Twenty-four percent of workers are not at all confident.

It’s natural to want to put your child’s needs before your own, but don’t lie to yourself and think you can delay saving for retirement because you’ll only harm yourself in the long run.

Thankfully, results from the most recent “How America Saves for College” study by Sallie Mae found that while saving for college is a top priority for families, it’s second to retirement.

Results of the study found that 55 percent of families are saving for retirement followed by 51 percent who are saving for college.

If you’re one of the families prioritizing saving for college over your own retirement, stop right now.

Ask yourself this question: Do you want to retire and have to rely on your child to take care of you financially when you go broke?

3. I Don’t Need to Save for College Now


The class of 2018 graduated as the most indebted ever, so imagine just how much college might cost your family 18 years from now.

How much debt are you willing to carry to pay for your little one’s higher education?

According to data from Google, when people search the word, “newborn,” searches for college and school subside while more immediate needs like “clothes,” “feeding” and “diapers” rise.

These results aren’t surprising, considering that college is probably one of the last things on the minds of new parents.

Fortunately, when people search for “toddler,” words like “school” and “college” rise to the top in a Google search.

While saving for retirement should definitely be your top priority, college is also a major cost that will bite into your savings.

You absolutely need to think about saving for college even if it’s nearly two decades away for your little one.

People with bachelor’s or associate’s degrees earn more money over their lifetime than those who skip college, according a report from the Federal Reserve Bank of New York.

Someone who holds a bachelor’s degree can expect to earn about $1.2 million more from ages 22 to 64 compared to someone with just a high school diploma.

If you want your child to have a better life than you do, then stop lying to yourself about not needing to save for college.

4. One of Us Needs to Stay Home With the Baby

Becoming a stay-at-home parent is a feasible option for many families, but not all.

A study by the Pew Research Center shows that about 29 percent of mothers choose to stay at home to take care of their kids, an increase from a modern low of 23 percent in 1999.

That increase is a reversal of a long-term decline that persisted for the last three decades of the 20th century, driven by demographic, economic and societal factors like an increase in immigration and a downturn in women’s participation in the labor force.

Families weighing whether a parent should stay at home must take into account a number of factors.

Paramount in that decision-making process needs to be an honest examination of your economic situation.

Can you afford to live off of a single person’s income?

What about childcare? Can a family member help?

These questions must be answered honestly. Don’t just assume that you or your spouse needs to stay home to watch your kid without carefully weighing your options.

Other factors to consider: your personality, ability to jump back into the workforce after a number of years out of it, and attachment to your career. Become a stay-at-home parent is not a decision that should be taken lightly.

5. We Need a Bigger House Now

The need for more space is not a lie in and of itself. Having a kid -- with plans for more in the future -- does mean that you will probably need a bigger home if you don’t have much room.

But it’s also a huge expense, likely the most expensive you’ll make in your lifetime.

Don’t begin looking at properties under the assumption that you need a bigger home without assessing your financial situation first.

Just because you can get a loan for a house doesn’t mean that it’s a wise financial choice.

While home ownership is a dream for many Americans, you don’t have to buy a home.

Let me repeat that: you don’t have to buy a home.

Maybe it makes more sense to rent right now, especially if you’re planning to live somewhere for a short period of time.

If you do decide you need to purchase a home, you don’t have to do it right away. Start budgeting for it and saving each month.

Like having a kid, buying a home is a big commitment.

Make sure you’re ready for it. Monthly payments on a home can vary.

What you pay might depend on your interest rate, credit score, property taxes, and how much you can put down on the home initially.

A general rule of thumb is that the cost of your home -- including maintenance, taxes, and other costs -- should not exceed 28 percent of your monthly income.

And keep in mind there are closing costs and legal fees you’ll have to pay as well.