Welcoming a baby? Discover the hidden costs and how to budget for them effectively

She knows how household expenses can go up by 20–30% during pregnancy and after childbirth. “Lifestyle and aftercare costs are prohibitively high in tier-I and tier-II cities; so, we have to use a major chunk of our budget for these expenses," she says.

Estimating the real costs of pregnancy and early childcare

Welcoming a child brings immense joy to the family, but it also reshapes the monthly budget in ways many couples underestimate.

Maternity expenses can vary widely depending on the city, hospital type, and delivery method. “In a top-tier hospital in Gurugram, costs leading up to delivery (such as prenatal consultations, routine tests, scans and medications) can range from ₹50,000- ₹80,000, while the delivery itself may cost ₹1.5-2.5 lakh. This brings the total to roughly ₹3-3.3 lakh. Even in mid-tier hospitals, couples should expect expenses of over ₹1.5 lakh. Realistically, for a metropolitan city, it’s wise for couples to budget at least ₹2.5-3 lakh for maternity and delivery costs," says Shubham Gupta, CFA, co-founder of Growthvine Capital.

The monthly budget looks very different once a baby comes along. Diapers, formula, doctor visits and even a bit of extra help at home can add up quickly.

Planning ahead: Baby budgets and financial cushion

The best way to welcome a newborn is to start planning even before pregnancy. Typically, pregnancy and early childcare raise household expenses by 20-30%. A family spending ₹50,000 month today may see this rise to ₹65,000-70,000. And the sooner you get a handle on your monthly bump-up, the better it is for you to plan. Sit down with your doctor to understand the vaccination schedule and likely medical costs over the next few years.

“Add to this a realistic estimate of recurring spends on baby products, check-ups, and childcare. When you see the numbers on paper, it becomes easier to plan for them," says Charu Pahuja, CFP CM, group director & chief operating officer, Wise Finserv. Prepare a few months in advance. Track where your money is going, cut down on non-essentials, and create a “baby budget" so the jump in expenses does not take you by surprise. This way, you are not dipping into long-term savings every time a new cost shows up.

“Setting aside six months of these higher costs, roughly ₹4–4.5 lakh cushions against medical complications, unpaid leave, or a job break, ensuring that families don’t have to dip into long-term investments at the wrong time," says Aditya Agarwal, co-founder, Wealthy, a wealth tech platform.

To make sure these expenses don’t strain your monthly cash flow, set aside money in advance. Setting aside money should start as soon as you plan the baby or at least as early as the first trimester. “Deploying it in a liquid fund or a short-term fixed deposit is a smart approach—the money stays safe, grows modestly, and remains accessible whenever needed," says Pahuja. Keep this money aside only for baby expenses, so you don’t end up using it for something else.

Upgrading health and life insurance before pregnancy

"Once you are preparing to expand your family, reviewing your insurance cover is non-negotiable. Term life insurance needs to be recalibrated to at least 10–15 times your annual income. That ensures your family can continue its lifestyle and meet long-term goals even if the unexpected happens," says Pahuja. When it comes to maternity insurance, there is a waiting period of nine to 24 months; so if you want to get covered for maternity, such insurance needs to be taken well in advance.

“Waiting period is one of the most critical aspects in maternity coverage, as it defines when policyholders can begin availing of benefits. Coverage limits or sub-limits are also vital to select a plan, along with knowing the typical cost of delivery in your preferred hospital or city," says Ajay Shah, head of distribution, Care Health Insurance.

While crucial medical expenses connected to childbirth are covered by maternity health insurance, there are some specific exclusions. “Such policies don’t cover the costs of pre-existing pregnancy, infertility treatments like IVF, voluntary abortions, routine doctor visits not related to delivery, non-prescribed medications and dietary supplements, as well as complications due to unapproved or experimental medical procedures," says Shah. Non-medical expenses like diapers or baby clothes, plus multiple births from the same pregnancy, may also be excluded.

Even after the waiting period, the coverage amount is often capped at ₹50,000 to ₹1 lakh, which is usually not enough for private hospital costs. “To safeguard against these gaps, couples should secure health insurance well before starting a family, check whether their corporate health cover offers more comprehensive maternity benefits, and build a dedicated 'baby fund' to cover expenses that go beyond insurance caps," says Amit Suri, CFP and founder, AUM Wealth.

“Since most retail policies cap maternity cover at ₹50,000- ₹1,00,000, couples should budget an extra ₹1.5-2.5 lakh in liquid savings," says Agarwal.

Equally valuable are newborn care benefits that often include coverage for the baby for up to 90 days from birth, including expenses for congenital conditions or critical illnesses.

Singh says that maternity insurance in India is extremely fragmented and often insufficient. “Although we have insurance, we cannot completely rely on it; so, we plan to pay most expenses out-of-pocket, treating the policy more as a little support rather than the main financial cushion," she says.

Laying the foundation for future education savings

The bump in monthly budget comes not only from the additional spending once a baby arrives, but also from increased savings and investing for the child’s future, which in turn depends on the choice of investment vehicles. Equity mutual funds through SIPs remain one of the most tax-efficient methods for building a corpus for education and other goals, especially since the long-term capital gains tax is taxed at just 12.5% ​​beyond the ₹ 1.25 lakh annual discounts.

“Even modest monthly contributions, if started early, can grow into a substantial corpus thanks to the power of compounding," says Gupta.

Parents of daughters could also consider Sukanya Samriddhi Yojana, a government-backed scheme that allows contributions from ₹250 to ₹1,50,000 a year. The current interest rate is 8.2% per annum, completely tax-free, with deductions under Section 80C in the old income-tax regime. “It is one of the most reliable long-term savings avenues in India. Alongside equity SIPs, it can form a strong core for your child’s future planning," says Pahuja.

NPS Vatsalya, a child education savings scheme under the National Pension System (NPS) is also one option parents can consider. Parents can invest regularly with flexible equity allocation up to 75%. It offers compounding growth, tax benefits, and partial withdrawals. At 18, it converts into a regular NPS Tier I account.

Longer-term savings are also a target, along with immediate expenses. The Singhs say they would prefer SIPs in mutual funds for the better returns and the effect of compounding for the future of their child. “The earlier we start, the more assured we become of being able to meet education and health needs without denting our own financial goals right away," says Singh.

Being financially prepared not only adds to the joy of welcoming a baby home, but also helps keep financial worries to a minimum.