4 Hidden Money Traps New Parents Need To Avoid

Becoming a parent for the first time is exciting, but it also comes with a learning curve. During this whirlwind of excitement, it’s easy to fall into hidden money traps that can have long-term repercussions on your family’s finances.

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Here are four common pitfalls that new parents should avoid.

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Choosing the Wrong Healthcare Plan

Having a baby comes with a variety of new healthcare needs, including pregnancy visits, hospital stays, delivery costs, and newborn care. It’s easy just to keep your existing healthcare plan or get overwhelmed with choices and make a hasty decision based on which plan has the lowest monthly premium. Choosing a plan with a lower premium without considering your coverage and out-of-pocket costs can be an expensive mistake.

With a new child, you may encounter unexpected medical expenses that could be a significant financial burden if you are on a high-deductible plan or have limited insurance coverage. Carefully evaluate your coverage, deductible, and co-pays before picking a plan. Also review any available Health Savings Account (HSA) or Family Savings Account (FSA) options to save tax-free money for those expected and unexpected health costs.

Forgetting About Tax Advantages

Busy new parents often overlook the potential tax advantages of having a child, but you’re leaving money on the table if you don’t take advantage of these tax benefits. You could be eligible for a $2,000 child tax credit each year, depending on your income.

You can also take a deduction that is twice as large as normal:

• $13,850 for singles and married individuals filing separately
• $27,700 for married couples filing jointly
• $20,800 for head of household

And if you need more take-home pay, parents are permitted to file an updated W-4 form indicating that they have a new dependent. This allows you to take less tax money from each paycheck, leaving more in your monthly bank account.

Only Saving for College, Not Retirement

While it’s natural for parents to prioritize saving for their child’s college education, it can often lead to neglecting their own retirement savings. Many new parents make the mistake of funneling all their savings into a college fund, which can put them 18 or more years behind on retirement savings.

Both are worthy financial goals, and you will need to strike a balance between saving for each. By prioritizing retirement savings alongside college funds, you can ensure your financial security while providing for your child’s future.

Buying Too Many New Items

The excitement of welcoming a new addition to the family often leads parents to splurge on too many baby items. From adorable clothing to the latest baby gadgets, it’s easy to get caught up in the whirlwind of consumerism.

Overspending on baby items can drain your bank account and leave you with a mountain of unused clothes, toys, and gadgets that your child will quickly outgrow. Focus on purchasing the essentials, especially since you will likely receive some baby items as gifts. There are also many sources for used baby gear such as friends, family, and neighbors with kids who have outgrown their items.

This article originally appeared on GOBankingRates.com : 4 Hidden Money Traps New Parents Need To Avoid