Becoming a parent for the first time is the most wonderful events anyone can experience. I have two wonderful children and my life would not be complete without them. For any new parent, there are lots things things that you will need to figure out. Below I share some financial advice I wish I followed as a new parent.
Start Saving for College Sooner
The average cost of a four-year college degree at a public university runs about $57,000 and shows no sign of slowing down. We did not start saving for our children's college expenses until they were around three years old. I would advise any new parent to setup a 529 college savings account as soon as possible after the birth of a child and setup up an automatic monthly contribution so that you will have the benefit of time to grow the account. The longer you wait to start saving for college the more you will have to contribute each month.
Rent Before Buying a Home
Buying a home is the single largest purchases you will ever make and it will also have the largest impact on your net worth down the road. In fact, Jim Wang reports in a recent article in Business Insider, home equity accounts for roughly 75% of the average american's net worth. If home equity is such a large portion of net worth for most americans why should you wait to purchase a home? Waiting to purchase a home gives you time to save a large enough down payment so that you can avoid having to pay the added expense of private mortgage insurance or PMI. Depending on the loan amount, your down payment, and your credit score, PMI fees will range from .3% to around 1.5% of the original loan balance each year. On a $180,000 loan, this could mean anywhere from $540 to $2,700 per year in extra PMI fees that could be going to fund a college savings account or to boost retirement savings.
Buy Used Instead of New
Like any new parent, we were excited to decorate the baby's room and purchase the endless array of items for our new bundle of joy. We had no idea how expensive everything was and how massive the final price tag would be. The average cost for your baby's first year will run somewhere in the neighborhood of $2700 and that does not include the medical costs of roughly $9,000 for the average hospital delivery.
Buying items like cribs, changing tables, rocking chairs, outdoor play sets, books, and other items gently used at garage sales or online sites like Craigslist can cut costs dramatically. We decided for sanitary reasons to buy clothing and toys new however, there are more savings to be had by buying clothing and toys used and sanitizing them yourself.
Don't Sacrifice Everything for Your Child
The best advice my mother shared with me when I became a new parent was to take good care of myself so that I can take good care of my children. Every parent would do anything for their child but sometimes the best thing is to let your child figure things out for themselves. Helping your child repair a broken toy with a little glue not only teaches resourcefullness but it develops critical problem solving skills. Running out to the store and replacing broken toys robs your child of this opportunity and instead teaches them that possessions are disposable and easily replaced with the swipe of a credit card.
Sometimes saying no to your child is the greatest gift you can provide.