Becoming a parent changes everything – your sleep schedule, your priorities, and most importantly, your finances. In India, where raising a child involves long-term educational goals, healthcare, housing, and cultural obligations like weddings and ceremonies, planning your money smartly is not just helpful – it’s necessary. That makes financial planning for a baby’s future just as important as picking the right stroller. Financial planning is important whether you’re expecting your first child or already changing diapers, and if you don’t know where or how to start, don’t worry; we’ve got you covered. This guide helps you understand what it takes to financially prepare for your child’s future and your own peace of mind.
Read Also: Financial Planning Vs Retirement Planning
The Real Cost of Raising a Child in India
Raising a child in an urban Indian household is far more expensive than many expect. Recent data estimates that for a middle- to upper-middle-class family, the total cost of raising one child until the age of 21 can range between ₹1.2 crore and ₹1.5 crore. This figure includes education, housing, healthcare, clothing, activities, and food. If you plan to fund a wedding or help your child start their own business later, that number can easily climb higher.
- Annual costs: Between ₹50,000 and ₹1.2 lakh depending on the city.
- Education alone: About 46% of this cost (₹49.35 lakh)
- Higher expenses: Mumbai, Delhi, Bengaluru, and Hyderabad top the list for highest urban child-rearing costs.
Education inflation is rising at 12–14% per year, and engineering college fees have jumped 70% in the last 10 years.
Do You Know?
By the time your toddler reaches college, a basic undergraduate degree might cost ₹30–40 lakh. That’s without factoring in living expenses, extracurriculars, or additional coaching.
How to Start Financial Planning for a Newborn in India: A 7-Step Guide
Step 1: Build an Emergency Fund for New Parents
An emergency fund is your financial safety net. Start here before anything else.
- Target: 6 to 12 months of expenses
- Example: If you spend ₹50,000/month, that’s ₹3–6 lakh in a savings account or liquid fund
This fund ensures you don’t have to dip into your savings or take on debt when the unexpected hits – whether it’s a job loss, medical emergency, or sudden expense related to your child.
How to build it: Start by saving one month’s expenses, then automate small monthly transfers. Even ₹2,000–₹3,000 per month makes a difference over time.
Also, avoid locking up your emergency fund in fixed deposits with long lock-in periods. Instead, look at liquid funds or short-term debt funds.
Step 2: Get the Right Insurance
Health Insurance
Children get sick, and babies need vaccinations. Hospital bills add up fast. Choose a family floater policy with at least ₹10–15 lakh cover.
Must-have features:
- Maternity & newborn cover
- Vaccinations
- Hospital stays
- Critical illness riders
Life Insurance
If something happens to you, your child’s future should still be safe.
- Rule of thumb: Term plan with 10–15 times your annual income
- Example: If you earn ₹12 lakh/year, get ₹1.2–1.8 crore cover
Bonus
Premiums qualify under Section 80C – so you save on taxes too.
Step 3: Plan for Education – Start Early
One of the biggest financial goals for any parent is funding their child’s education. And the earlier you begin, the easier it becomes, thanks to the power of compounding,
To put things in perspective, the projected cost of higher education, especially if you’re considering private colleges or studying abroad, could reach ₹40–₹50 lakh or more by the time your child turns 18. That’s why it’s crucial to start investing as soon as possible, ideally from the moment your child is born.
Best Investment Plans for a Newborn Baby
- Sukanya Samriddhi Yojana (SSY)
- For girl children only
- Government-backed with 7.6% interest (as of 2025)
- Returns are completely tax-free
- You can invest up to ₹1.5 lakh annually under Section 80C
- Lock-in until the girl turns 21, or for marriage at 18
- Public Provident Fund (PPF)
- Safe and conservative investment option
- Offers 7.1% interest (2025), backed by the government
- Lock-in period: 15 years
- Eligible for tax deductions under Section 80C
- Equity-Linked Saving Schemes (ELSS)
- Market-linked mutual funds with a 3-year lock-in
- Offer potentially higher returns compared to PPF or SSY
- Qualifies for Section 80C tax benefits
- Best suited for long-term goals if you can handle some market risk
- Child ULIPs (Unit-Linked Insurance Plans)
- Combines life insurance with investment
- Useful for parents who prefer structured, milestone-based withdrawals
- Offers some tax benefits, though returns vary based on fund performance
- Can be a disciplined way to save, especially if you want insurance cover included
Pairing a small SIP with a one-time investment plan for your newborn baby in India can balance risk and convenience.
Why Start Early?
Starting early gives your money time to grow. It also means you can invest smaller amounts over a longer period, reducing the monthly burden. Plus, if you delay, you’ll need to invest much more each month to reach the same goal-and you’ll have less flexibility if life throws surprises your way.
Whether you choose conservative options like PPF or take a more aggressive route through ELSS or mutual funds, the key is consistency. Automate your investments through SIPs and review them every year to make sure you’re on track.
Step 4: Maximise Income (Even with Kids)
Becoming a parent often means added financial pressure- more expenses, but sometimes, less income. While maternity and paternity leave provide some breathing room, they usually don’t cover everything, especially when only one partner is earning or when expenses suddenly spike.
In India, working mothers in the formal sector are entitled to 26 weeks of paid maternity leave, while government-employed fathers get 15 days of paternity leave. However, not all private companies offer comprehensive leave policies, and only about 34% of Indian companies currently offer hybrid or remote work options, which limits flexibility for new parents.
That’s why many parents are now exploring side gigs and freelance work to supplement their main income. Various platforms allow skilled professionals to take on projects in content writing, graphic design, tutoring, digital marketing, or coding, all from the comfort of home.
The key takeaway?
You don’t have to rely solely on your primary salary. By using your skills and spare time wisely, you can boost your income without stepping away from your parenting responsibilities. It’s a smart way to create more financial breathing room as your family grows.
Step 5: Don’t Miss These Tax Benefits
Smart tax planning can help you save a significant chunk of your hard-earned income-money that can be redirected toward your child’s education, healthcare, or emergency fund. According to an article by Acko, several sections of the Income Tax Act offer valuable deductions for families.
Start with Section 80C, which allows you to claim up to ₹1.5 lakh in deductions annually. You can do this by investing in options like the Public Provident Fund (PPF), Equity-Linked Saving Schemes (ELSS), and Sukanya Samriddhi Yojana (SSY), or by paying your child’s school tuition fees.
Next, Section 80D lets you deduct ₹25,000 to ₹50,000 for premiums paid toward family health insurance. This not only protects your family from medical emergencies but also reduces your taxable income.
Under Section 10(10 D), returns from life insurance policies (like child ULIPs) are completely tax-free, provided they meet specific conditions. This is a double win-financial security and tax savings.
And if you’re planning to move to a larger home to accommodate your growing family, don’t overlook Section 24, which provides a ₹2 lakh deduction on home loan interest. If you’re living on rent, you can also claim HRA (House Rent Allowance) exemption, further lowering your tax burden.
Step 6: Healthcare and Mental Wellness
Kid’s health: ₹15,000–₹25,000/year
Covers vaccinations, check-ups, medicines, and growth tracking
Mental health: Postpartum depression affects 22% of new Indian moms
Set aside ₹2,000–₹4,000/session if needed
Some employers now offer free counselling via EAPs (Employee Assistance Programs)
Step 7: Build Long-Term Wealth – Smart Investments
One of the smartest ways to plan for your child’s future is to invest based on time horizons – that is, how far away the goal is. The basic idea is simple: the longer you have until you need the money, the more risk you can afford to take for potentially higher returns.
- Short-term goals (0–5 years): like saving for school admissions or moving to a bigger home, it’s best to keep money in safe, low-risk instruments such as fixed deposits (FDs) and debt mutual funds. These offer stability and help preserve capital, with an ideal equity-to-debt ratio of 20:80.
- Medium-term goals (5–10 years): such as saving for coaching classes or entrance exam preparation, balanced investments work best. Hybrid mutual funds and the National Pension Scheme (NPS) are good choices, offering a 50:50 equity-to-debt mix. They allow some growth while keeping volatility in check.
- Long-term goals (10+ years): like college or higher education abroad, you can be more aggressive and afford to take more risks. Invest in equity mutual funds and consider real estate. A recommended 80:20 equity-to-debt split helps your money grow significantly over time due to the power of compounding.
To protect your money from inflation, consider adding gold ETFs to your portfolio. Allocating about 10–15% of your investments in gold acts as a hedge. Real estate, especially in metro areas, can also be a good inflation-beating asset, with historical appreciation rates of 6–8% per year.
Start Small, Stay Consistent
You don’t need ₹1.5 crore in the bank today. What you need is financial planning. A clear plan.
Step-by-Step Financial Checklist for New Parents:
Use this step-by-step financial checklist for new parents to tick off milestones during the first 12 months.
- Build a basic emergency fund (start with ₹50,000 if needed)
- Take term insurance and family health insurance
- Start a ₹2,000+ SIP in an education-focused fund
- Open a PPF or SSY account
- Explore flexible or freelance income options
- Track your expenses and revise your budget quarterly
Remember
Financial planning isn’t about perfection. It’s about progress. The earlier you start, the easier it gets. What separates stressed-out parents from financially prepared ones isn’t wealth. It’s awareness, intention, and action. Set a calendar reminder to revisit your plan every six months. Life will change-so should your financial map.
Your child’s future isn’t waiting. It’s unfolding now. And every small decision you make today, every rupee saved, every benefit claimed, every investment started, builds the foundation for their tomorrow.
So take the next step. Not perfectly. Just purposefully.
Because the best gift you can give your child, beyond love, is security.
FAQs
Q1. What is the first step in financial planning for first-time parents?
Start by creating an emergency fund for new parents equal to 6-12 months of expenses.
Q2. Which is the best investment plan for a newborn baby in India right now?
For tax-efficient, low-risk growth, Sukanya Samriddhi (for girls) or PPF plus an equity index fund is often touted as the best investment plan for a newborn baby.
Q3. How much does it really cost to raise a child in India?
Current studies peg the cost of raising a child in India at ₹1.2–1.5 crore over 21 years.