BackFor a financially secure happily ever after
These first few money steps when starting a life together will ensure a firm foundation to build on
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Sussex-based Shon John, 30, and Kottayam-based Judith George, 26, got married in January. Before they got married, during their six-month courtship, among the many things that they talked about was their financial life together. “Till the wedding was finalized, I wasn’t comfortable broaching the topic of money. But once it was fixed, we started talking about it more," said Judith, who plans to move to England by May. Till she gets a job there, the young couple will live on Shon’s salary—something they had discussed at length.
Discussing financial matters before getting married is important, even if it’s awkward or you think you have matters under control. Often, a couple is compatible in many ways, but not in financial habits. There is also a lot of research to prove that money is, in fact, a major cause of disagreement between couples.
Mint Money gives you a few simple pointers on how to manage and create a secure financial future.
Have the money talk
Once the marriage ceremonies and the honeymoon is over, and the two of you have settled into daily routines, sit down and have a proper money talk. “Look at the holistic picture and start thinking collectively. For instance, if before marriage, your parents were handling your investments and bank accounts, should they continue do to so? Do you want to open a joint bank account now? Calculate your monthly income as a couple and then chalk out expenses to see how much is left in a month," said Surya Bhatia, managing partner, Asset Managers, a financial planning firm. Your expenses could be rent, phone bills, equated monthly instalments (EMIs), and so on.
Judith and Shon calculated their tentative monthly expenses, which made them realize that at least for the time being, they could manage with Shon’s income. “If we aren’t extravagant, after all the expenses in a month, I think we can manage to go out once a week," said Judith.
Be open about each other’s debt situation. This will not only give a realistic picture of finances but also help in calculating the real expenses versus what is perceived.
Set goals together
Quantify your goals into money terms and give each goal a time frame. Suresh Sadagopan, a Mumbai-based financial planner, said newly married couples should first focus on short-term goals. “There will be many short-term expenses—setting up the house (most probably a rented one), buying white-goods and even holidays. Cash flow to, say, service a home loan EMI might be difficult."
A word of caution here: avoid debt traps. If you want to buy something, start saving for it and then buy. As far as possible, don’t buy using a credit card or with EMIs.
If you have received money from relatives as wedding gifts, use that. “To buy things like a television, we plan to use the money my sister gave as a wedding gift. The security deposit for the house will be paid using the bonus that Shon has just received," said Judith. One of the things the couple wants to do soon is buy a car, and travel. “Once I get a job as well, we can start thinking about bigger things," said Judith.
Though they do want to buy a house, it is not in their agenda for the near future. It may happen once they know more about their expenses and are better settled. Then they will think about buying a house—in England or India.
“Typically, a couple starts thinking about long-term goals once they have a child," said Bhatia.
Plan for the future
Maintain an emergency fund to take care of your monthly expenses for at least six months. Make sure that the instruments that you choose are liquid, short-term debt funds, for example. Recurring deposits will also help in meeting short-term goals and creating liquidity.
Give yourself 3-5 years to settle down and gauge your monthly cash flow. Sadagopan says that the further away the goal, the higher should be the percentage of equity-oriented products. For instance, if you are saving to buy a house after three years, you can have a portfolio with around 70% in debt products and the remaining in equity. If you can wait for seven years, equity can form 60% of the portfolio.
If you do not have the wherewithal to invest directly in the stock market, choose equity mutual funds. Have a look at Mint50, Mint’s curated list of investment-worthy mutual funds. Choose a mix of large-cap and mid-cap funds that totals no more than seven. Invest via systematic investment plans (SIP) as this will allow you to invest small sums and give you the benefit of compounding in the long term.
Both of you should open a Public Provident Fund (PPF) account each (if you don’t already have one). You can invest anywhere between 500 and 1 lakh a year and earn tax-free returns on a 15-year guaranteed product. If you have an Employee Provident Fund, let this be a forced investment. Whenever you change a job, unless it is absolutely necessary to withdraw, transfer the PF account.
When it comes to insurance, for the time being, or at least till the time you have a child, you needn’t get a life insurance policy. But if you are a single-income couple, or have liabilities like a home loan, life insurance is a must. The general rule is to have a sum assured that is 10 times your annual income.
Even if life insurance is optional for the time being, health insurance is not. Buy your own health policies, even if your organization gives you health cover.
Revisit your financial plans regularly, especially if there is an important change, such as moving from double income to a single income, or shifting cities or jobs.
Nitty-gritties
There are a few small things, too, to take care of. A basic starting point for a newly married couple is a bank account. What works often is to maintain three accounts: a joint account and individual accounts for each spouse. Use the joint account for household expenses. How much each spouse contributes can depend on how much on the income. Say, spouse A earns 1 lakh and spouse B earns 50,000 a month. As A earns two-thirds of the total income, she could contribute that much.
For investments, it is better to have individual accounts, specially from a taxation point of view. It is easier to figure out contributions this way.
If you have earlier investments and nominees for those (usually, the parents), it is advisable to name the spouse as the nominee. This helps in avoiding possible complications in the future.
And as for who should take the lead in investment decisions; there is no set rule. The more financially aware spouse can take the reins. Whatever you do, keep each other in the loop. As mentioned earlier, money can lead to a lot of disagreements in a family.
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