 "Work towards achieving financial bliss")
The marriage season will begin in a few weeks. Marriage brings on many responsibilities, among which one of the most important ones is money management. Success on this front not only creates domestic bliss but also enables couples to attain their life's dreams and objectives. It's also a delicate matter that must be handled with due care, since money has the power to sour relationships. Here then is a roadmap to help newly-weds manage their finances effectively.
Develop transparency and trust
As a couple, you must understand where each of you stands financially. What are your earnings? How much do you save and invest? Are you repaying loans? If yes, how do the repayments affect your financial health? Among couples, it's important to be open about material facts, especially financial ones. When talking to your partner, concealing your financial state, or worse, lying about it, can erode credibility and cause long-term damage to the relationship. Conversely, transparency builds mutual trust and understanding.
Spend judiciously
When you were single, you may have been used to living in a small home or sharing one with room-mates. Your expenses were limited, and maybe you had a frugal lifestyle. After marriage, some of this could change. You may need to upgrade your lifestyle and acquire a bigger home, a vehicle, electrical conveniences, and so on. You may even have to shoulder expenses on both sides of the family. Discuss how you're going to deal with your combined and individual expenses in your new life. You must also understand each other's spending habits to ascertain that there are no red flags. Increased discretionary spending can dent long-term wealth creation, and it would be wise to detect and end bad habits before they get out of hand.
Arrive at your goals together
Every couple should develop short, medium and long-term goals. Each kind of goal will need financing. Short-term goals could include going on a holiday. Medium-term goals could be having a child, buying a vehicle, completing higher education, and so on. Long-term goals could be buying a house, building a retirement corpus, and funding your child's higher education and marriage.
Some of these distant goals will not be on your radar right now, but they will be eventually. As a couple, you must discuss these goals-and any others you may have-and how you can each contribute to achieving them. This is especially important in the case of personal goals. There's a tendency, especially among Indian women, to abandon personal goals after marriage in order to take care of their family. This need not be the case always. Discussing your goals with your spouse, and having him or her support them, can be a massive confidence booster.
Pick the right instruments
The key to accumulating money to fund your goals is picking the right investment instruments. Pick the wrong ones and your life plans could get derailed. As a thumb rule, take higher risks while planning for long-term goals. The more distant the goal, the more risk you can afford to take. Use stocks and equity mutual funds for such goals. For short and medium term goals, stick to debt instruments. Start talking about how you will raise the funds for each of your goals. To select the best instruments for your needs, consult someone knowledgeable, such as a qualified financial advisor.
Combining versus segregating incomes
This often becomes a sore point among working couples. Who is responsible for settling which part of the expenses? Couples must have their own bank accounts to meet their discretionary expenses. However, they should consider combining their financial powers to tackle life's bigger challenges. Paying off a home loan is a good example. It's a large-sized, long-term problem, and dealing with it requires commitment and hard work. But a couple taking a joint loan and paying off the EMIs together eases the financial burden on any one of them. You should arrive at a decision about how far you will combine your incomes, and where you would prefer to segregate them.
Assign responsibilities
Tracking EMIs and insurance premiums, settling utility bills, and managing investments is no easy task. Between a couple, it may be too much for one person to do all the tracking and settling. These responsibilities should be shared. Ideally, you should automate many such payments. SIPs, utility bills, premiums, credit card bills, and EMIs can all be automated by issuing an ECS mandate to your bank. Doing so not only helps you pay off your bills on time automatically, it could also earn you bonus points. Any other responsibilities that can't be automated should be divided between the couple.
Get adequate insurance
Having long-term responsibilities and dependants means that you must insure yourself, or enhance your existing covers. Everyone having dependants must opt for a life term cover. If you don't have health insurance, you should immediately get one and cover your family members. If you have a group health cover provided by your employer, include your spouse in it. Update nomination and beneficiary details in all your bank accounts, deposits, investments and insurance.
Stick to a budget
Once you start living with your partner, draw up a monthly budget to track where your money is being spent. This will help you recognise and control non-essential spending, thereby freeing up more money for savings and investment. Give the same level of importance to insurance and investment payments as you do to paying rent and buying food. If you are young and your incomes small, don't worry unnecessarily about it. What's important is that you save according to your capacity. Your income will keep growing with time, and so should your investments.
| ACTION PLAN FOR NEWLY-WEDS |
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Develop transparency and trust
As a couple, you must understand where each of you stands financially. What are your earnings? How much do you save and invest? Are you repaying loans? If yes, how do the repayments affect your financial health? Among couples, it's important to be open about material facts, especially financial ones. When talking to your partner, concealing your financial state, or worse, lying about it, can erode credibility and cause long-term damage to the relationship. Conversely, transparency builds mutual trust and understanding.
Spend judiciously
When you were single, you may have been used to living in a small home or sharing one with room-mates. Your expenses were limited, and maybe you had a frugal lifestyle. After marriage, some of this could change. You may need to upgrade your lifestyle and acquire a bigger home, a vehicle, electrical conveniences, and so on. You may even have to shoulder expenses on both sides of the family. Discuss how you're going to deal with your combined and individual expenses in your new life. You must also understand each other's spending habits to ascertain that there are no red flags. Increased discretionary spending can dent long-term wealth creation, and it would be wise to detect and end bad habits before they get out of hand.
Arrive at your goals together
Every couple should develop short, medium and long-term goals. Each kind of goal will need financing. Short-term goals could include going on a holiday. Medium-term goals could be having a child, buying a vehicle, completing higher education, and so on. Long-term goals could be buying a house, building a retirement corpus, and funding your child's higher education and marriage.
Some of these distant goals will not be on your radar right now, but they will be eventually. As a couple, you must discuss these goals-and any others you may have-and how you can each contribute to achieving them. This is especially important in the case of personal goals. There's a tendency, especially among Indian women, to abandon personal goals after marriage in order to take care of their family. This need not be the case always. Discussing your goals with your spouse, and having him or her support them, can be a massive confidence booster.
Pick the right instruments
The key to accumulating money to fund your goals is picking the right investment instruments. Pick the wrong ones and your life plans could get derailed. As a thumb rule, take higher risks while planning for long-term goals. The more distant the goal, the more risk you can afford to take. Use stocks and equity mutual funds for such goals. For short and medium term goals, stick to debt instruments. Start talking about how you will raise the funds for each of your goals. To select the best instruments for your needs, consult someone knowledgeable, such as a qualified financial advisor.
Combining versus segregating incomes
This often becomes a sore point among working couples. Who is responsible for settling which part of the expenses? Couples must have their own bank accounts to meet their discretionary expenses. However, they should consider combining their financial powers to tackle life's bigger challenges. Paying off a home loan is a good example. It's a large-sized, long-term problem, and dealing with it requires commitment and hard work. But a couple taking a joint loan and paying off the EMIs together eases the financial burden on any one of them. You should arrive at a decision about how far you will combine your incomes, and where you would prefer to segregate them.
Assign responsibilities
Tracking EMIs and insurance premiums, settling utility bills, and managing investments is no easy task. Between a couple, it may be too much for one person to do all the tracking and settling. These responsibilities should be shared. Ideally, you should automate many such payments. SIPs, utility bills, premiums, credit card bills, and EMIs can all be automated by issuing an ECS mandate to your bank. Doing so not only helps you pay off your bills on time automatically, it could also earn you bonus points. Any other responsibilities that can't be automated should be divided between the couple.
Get adequate insurance
Having long-term responsibilities and dependants means that you must insure yourself, or enhance your existing covers. Everyone having dependants must opt for a life term cover. If you don't have health insurance, you should immediately get one and cover your family members. If you have a group health cover provided by your employer, include your spouse in it. Update nomination and beneficiary details in all your bank accounts, deposits, investments and insurance.
Stick to a budget
Once you start living with your partner, draw up a monthly budget to track where your money is being spent. This will help you recognise and control non-essential spending, thereby freeing up more money for savings and investment. Give the same level of importance to insurance and investment payments as you do to paying rent and buying food. If you are young and your incomes small, don't worry unnecessarily about it. What's important is that you save according to your capacity. Your income will keep growing with time, and so should your investments.
The writer is CEO, BankBazaar.com