Home >Money >Calculators >Two incomes mean twice the opportunity

A double-income family has a financial edge over a single-income family. But a proper financial plan is needed to hold on to this advantage. It is important to have financial independence even when there are common goals to meet. Many questions have to be answered: who will pay the rent, who will pay the car loan equated monthly instalment (EMI), who takes the home loan EMI, whose life has to be insured for a higher amount, who should save for holidays and who for investments, and many more.

Though there aren’t any ‘one size fits all’ rules, Mint Money suggests some steps that a double-income family could take.

Paying the bills

Try and look at the incomes and expenses jointly; this comes with its own advantages than going solo. “These days we are seeing more couples sharing financial responsibilities, unlike with the older generation where, just one member in the family was the breadwinner," said Mumbai-based financial planner, Steven Fernandes.

Delhi-based Minu K., 30, works with a non-government organisation. With little experience in managing finances, she has asked her husband, Arun Premlal, whom she married earlier this month, to handle money matters for now. As a 36-year-old senior manager with a multi-national BPO company, Arun has more experience in such matters as he already has some investments and a house in Bengaluru. “She is not comfortable managing finances. So, we have decided for now, I will handle the monthly expenses. We don’t have a joint account yet, but I already had a sweep-in savings account, and we plan to use that jointly," said Arun, who has invested in Public Provident Fund, has life insurance from LIC, and pays EMIs for his home loan. “From my income, after sending money home (in Kerala), and keeping some for my expenses, I give the rest to Arun to manage," said Minu, who eventually plans to take a loan to buy a house in Kerala.

While Arun and Minu spend some time figuring out what arrangement works best for them, one of the ways to manage money jointly is to allocate expenses. Say, spouse A takes care of utility bills, such as electricity, newspaper and Internet, and B pays DTH, telephone bills, and household help’s salary. If spouse A is paying off a loan, then B could pay a larger part of rent. “Expenses such as school fees, which have to be paid monthly or quarterly, can be paid by taking turns," said Arvind Rao, chief planner, Dreamz Infinite Financial Planner.

For joint expenses, one may open a joint savings bank account in which each spouse contributes according to income. Say, spouse A earns 15 lakh a year with about 90,000 in hand every month and the rest coming in as bonus throughout the year. Spouse B may earn 10 lakh a year with only monthly income and no bonuses. So, spouse A can contribute 60% to the joint account and B, 40%. You may use any other combination as per your situation.

“Once the cash flow is structured towards the joint expense account, tracking money becomes easy, and it will help build accountability," said Nisreen Mamaji, a certified financial planner, and founder, Moneyworks Financial Advisors.

Saving for common goals

The next step is to plan for bigger financial goals. To begin with, as a priority, have a contingency fund. Put away enough money to take care of three-six months of expenses. This will come in handy if there is a temporary loss of income. So, if your monthly expenses are 50,000, the emergency fund should have between 1.5 lakh and 3 lakh. Ensure the money saved is in liquid instruments. Pick products such as a bank fixed deposit with shorter duration or liquid funds.

Insurance is a must. As the family runs on the income of both individuals, an appropriate cover for both is needed. “The person with higher income should always buy insurance so that the family can survive even when this income is not available," said Rao.

“I have health insurance from my company, for me and my spouse," said Arun, adding that he has bought health cover for his parents. But this is not enough, because even if both spouses have company provided insurance, it would be prudent to get your own mediclaim policies for a more comprehensive and continuous coverage.

Savings should ideally be a joint effort. “The formula to follow would be to subtract common expenses from the joint income, which will give you the joint surplus, which can be used for savings. The contribution to the savings pile should, ideally, be done in the proportion of the incomes," said Deepali Sen, founder and director, Srujan Financial Advisers LLP.

After accounting for the emergency fund, one should look at the common goals. These can include long-term goals such as buying a house, children’s education and marriage, and retirement, and short-term goals such as buying a car or going on a foreign holiday. Identify these goals, and contribute jointly.

One of the biggest goals is buying a house. Availing a home loan is easier for a married couple as joint home loans can fetch you a bigger loan amount since income of the co-borrower is also considered. Some banks even allow debit instructions from two separate bank accounts. Check if your bank has this facility. You can also use the joint account for this.

“The property should be taken in both spouses’ names, where one can be the primary owner, and the other the co-owner. This will bring about a level of security," said Fernandes.

Managing investments

Certain investments like buying a house can be done jointly. “Buying a house jointly not only eases the financial burden but also comes with tax benefits," said Suresh Sadagopan, a Mumbai-based financial planner. But when it comes to other investments, it is better to do it separately. “This is because in case of an income tax scrutiny, both spouses will not have to bear the brunt. Instead, use your spouse’s name as a co-applicant and not as the nominee," he said.

Joint investments work the same way as a joint bank account. Both can contribute according to incomes. Much also depends on frequency of income. The person who gets regular, monthly income can opt for regular investment options such as a systematic investment plan, while the person who gets lump sum income could save to partly pre-pay the home loan.

Tax savings

Delhi-based Rinchen Palmo, 32, works with an airline, and her husband Dorjey Namgial, 34, runs a travel company. Apart from investments in mutual funds, both have invested in a property each, for which they pay EMIs separately. “This helps us get tax benefits also," said Dorjey, adding that they will soon create a joint account for expenses and investments.

Some expenses help in saving on tax under the Income tax Act, 1961. For example, you can claim deduction for tuition fee for two children under section 80C up to 1.5 lakh a financial year. On a housing loan, the principal repayment can be claimed as a deduction under section 80C up to a maximum of 1.5 lakh individually by each co-owner. The repayment of the interest portion is also allowed as a deduction under section 24(b) for up to 2 lakh. So, if the loan is taken jointly, the combined tax benefit increases to 3 lakh and 4 lakh. Health insurance premium payments also come with tax benefits. You can claim deduction of up to 15,000 under section 80D on the premiums paid.

Mint Money take

Two earning members means dealing with two different money personalities; so a balance has to be struck to meet family goals. “Understand each other’s working span, who contributes in what proportion and financial goals of the family," said Mamaji. Set your financial priorities right and communicate well with each other to have a financial happily ever after.

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