This article aims to help newly married couples gain understanding on the importance of financial planning, management and to navigate their way around money matters for a secured and happy married life.
A wedding is a symbol of hope and promises for the future. It is about two individuals coming together to build a life together. It is a beautiful rite of passage.
In the early days of their marriage, it is quite acceptable for newly married couples to be caught up in the process of settling down as they re-work the changed dynamics of their lives. Practically all couples are so busy setting up home, discovering new quirks in their new phase that they tend to take it financially one month at a time till a pattern emerges.
Financial stability is the bedrock of a good marriage. Studies have shown that long and successfully married couples are those who discuss money matters honestly and who did their financial planning early on in their married lives.
For newly married couples who may be finding the changed financial scenario in their lives and the very process of financial planning overwhelming, let us first look at the key points which need to be considered:
- Plan Your Spending and Make a Budget
Discussing money matters is usually an uncomfortable exercise for newly married couples, but remember that the foundation of your marriage rests on a workable financial plan.
Assess the areas of expenditure and create a monthly budget. In the first six months, the spending may fluctuate but gradually a pattern will emerge.
While there are many apps which can help you track expense outflows under various heads, even referring a basic excel sheet will serve the purpose.
Once the budget has been crystalized, the couple should review it on a weekly or a fortnightly basis. The couple should, at this point, also share the responsibilities for their financial activities between them and keep each other posted.
- Bank Accounts
At the onset decide how you as a couple are going to be managing your bank accounts. Financial planners advise that a joint account be set up for meeting monthly expenditure so that there is clarity in the domestic finances.
Each partner should also have an individual account as well to have some freedom and flexibility in their money matters.
- Contingency Funds
Life has its twists and turns, and it always makes sense to have some funds set aside to tide over tough times. Set up a second joint account and deposit some money into it every month till you have at least six months (if not more) of living expenses saved up. Do not worry if you are still not sure of the exact amount needed to run your household, just keep building up the corpus, you will soon have the amount worked out and in place.
There are two other options, the first is to set up a recurring deposit for creating the contingency fund and the other is a Systematic Investment Plan in a Liquid Fund of any Mutual Fund. These options will provide a slightly higher rate of interest than a bank account.
- Life and Health Insurance
A corollary to the above discussion is health and life insurance. Sometimes the curve balls which life throws can be quite debilitating. Contrary to popular belief, it is certainly not morbid or ill-omened for the partners to have a frank discussion on how to cope with unfortunate situations in life such as illnesses, disabilities and even death.
Insurance plays a big role in mitigating the impact of calamities. Seeking the help of a financial advisor and working out the insurance needs and selecting a suitable plan is an excellent idea.
Since insurance premiums are lower for higher coverage levels when the insured is younger, it is best to opt for the highest coverage possible in both health insurance and life insurance as early as possible.
- Planning for Children
While the decision to have children may be quite fluid for newly married couples. Setting aside a nominal amount through a Systematic Investment Plan in a Equity based mutual fund is a good idea.
- Buying Property and Other Investments
Owning a house is a cherished dream for couples as it signifies security and stability. Apart from that a couple may wish to make other investments in gold or precious jewels or they may have plans to set up their own entrepreneurial venture someday.
Financial advisors do not encourage immediate investment in property without first having a contingency fund, insurance and retirement planning in place.
There are two main reasons for this:
- It has been historically proven that returns on property investment barely cover the rate of inflation and hence are not a very attractive vehicle for investment. It makes greater sense to rent a place and invest in other assets.
- The work scenario has changed a lot and it calls for a lot of agility on the part of the professionals – in terms of career opportunities emerging at different parts of the globe. It really does not make sense for a young couple to be tied down with the maintenance and management of a property in which they are not living.
- Retirement Planning
With improved medical facilities, one can expect to live a longer and healthier life. Starting your retirement planning early on in life enables you to harness the power of compounding and build a healthy corpus as is illustrated in the table below :
(Image Source: https://proinvestorindia.blogspot.com/2014/01/the-concept-of-compounding-rate-of.html)
- Milestone Indulgences (Dream Vacations, Vehicles, Gadgets, Jewelry and so on)
Life is to be lived to the fullest and what is the point of working so hard if one is unable to enjoy the fruits of one’s labor!
It is easy to get swept away by instant gratification and opt for various loans and financing schemes; even something as basic as making partial payments of your monthly credit card dues. These are all forms of financial traps which suck in your income and prevent you from doing some real savings and expenditure. It is wiser to plan, save and then spend on your dream indulgence.
We have covered the main financial aspects which newly married couples need to keep in mind as they embark on a new phase of life. Availing the expertise of a financial advisor in the financial planning would be of great help for a couple. Having said that, whether a couple wishes to manage their own money matters or enlist the help of an expert is not important; what matters is the consistency, prudence and discipline with which they manage their finances.