How to Prepare your Finances for Starting a Family

Your mid-20s are a defining phase of your life, and it’s important to consider the financial implications of each move you make. Financial planning for young adults is essential, and one of the most consequential decisions is starting a family. If you’re contemplating this decision, you’re someone who needs financial planning. Raising a child may require as much as Rs. 2 crore1, when you add up all the expenses such as education, healthcare, etc., from the day they are born to the day they become financially independent. Therefore, this emotional decision requires a long-term investment plan.
May 2023
6 mins read
How should you go about financial planning for starting a family?
You can divide the financial planning into three stages – before planning a child; a few months before birth; and after the birth of the child.

1.  Before Planning a Child

  • Have your personal insurance in place
    Insurance is one of the most important financial planning needs, and is critical for mitigating the impact of unforeseen future events. Personal insurance encompasses life, total and permanent disability insurance plans. While an individual doesn’t need to have them all, you’ll need a combination that works best for your family.

  • Get your health insurance sorted
    Pregnancy takes a toll on both individuals. So before you decide to start a family, it is time to dig deeper into your health insurance plans to understand what they cover and what they don’t. In case there is something critical missing in your current coverage, look for an additional policy – but make sure you start soon, as there is often a waiting time involved before you can claim.

  • Discuss the financial aspects with your partner
    When you are planning to start a family, it is imperative that both parents are on the same page regarding the financial repercussions involved. Talk about retirement contributions, the expected expenses involved in raising a child, and the elements that you need to cut back or increase from the existing budget. In addition, discuss the kind of childcare arrangements, schooling preferences and financial aspects of raising a child, such as the need for investing in ELSS funds, hybrid funds or gilt funds.

2.  When The Child’s Birth Is A Few Months away

  • Discuss upfront and recurring expenses
    Starting a family brings with it a host of upfront and recurring expenses. From the costs of visiting the doctor and conducting tests, to maternity clothing and food needs, there are many aspects that parents need to bear in mind. Make sure that you are both clear about all these expenses from the outset when you are starting your family. Investing in liquid mutual fund via a lump sum or SIP several months before birth can act as a buffer for your imminent financial needs.

  • Have your emergency funds in place
    While it is imperative for an individual to begin building an emergency fund as soon as they start earning, it is especially crucial if you're starting a family. Calculate how much you would need in your emergency fund and build up to the amount by investing in liquid or overnight funds via SIP plans.
  • Check if there are any workplace or government benefits available to you
    Attitudes to childcare are changing in corporate India, and this is reflected in supportive policies for new parents. The government, too, provides financial and non-financial aid to individuals starting a family. See if there are such schemes or perks available to you. For example, the Central government has started the Sukanya Samriddhi Yojana (SSY), a deposit scheme for girl children.
3.  After the Child is Born

  • Build an investment fund for them
    Many think you should have a savings account for a child, but this offers low returns and is vulnerable to inflation. Instead, look into the types of mutual funds and start SIP plans to build an investment fund for them. If you are a risk-averse investor, you can choose debt mutual funds. You can also go for a SIP plan in hybrid mutual funds or equity mutual funds for optimised returns.

  • Plan for the child’s education expenses
    Education expenses take up a majority of all the costs in raising a child, so plan and invest in your child’s education. Since the child’s education expenses are a few years away, look for equity mutual funds to invest in for the long term. There are several child education plans that can help you do it systematically. Mutual fund investments have the potential to provide steady returns over time to cover recurring education expenses.

  • Do not ignore your retirement funds
    We understand that having a child can be overwhelming, not only emotionally but also for your finances. You want to pour all your resources into the child’s welfare – but don’t forget to look out for yourself too. Find out if your workplace will continue to fund your retirement plan until you get back to the office. If not, you can look for supplementary retirement plans or pension plans to help you keep your retirement plans on track.
Starting a family is a momentous decision, so make sure you are fully prepared for it. If you have a robust plan in place, you will be able to truly enjoy this phase of your life and give your child a good start in life.


Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

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