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Financial Planning Tips for the newly weds

By Visweswar Reddy

So, you are newly married. Amidst all the romantic talk you must be finding yourself in a completely new situation as you are called upon to run your new household and share your money patterns. Taken aback by this not-so-discussed side of conjugal harmony? You will soon realise sharing your incomes and financial goals will lead to a larger picture of bliss eventually. Here’s how.

What is financial planning?
Financial planning is a process of identifying your future goals, quantifying them in money terms and making plans to achieve them. There are many elements which are involved in financial planning: budgeting, insurance, investment, taxes, retirement and estate planning. Financial planning varies for individuals in different stages of one’s life cycle as it highly depends upon an individual’s age, income level, number of dependants, risk-taking capacity, investment horizon etc.

Finances & the Newlyweds
In today’s world, newlyweds face a variety of challenges. Firstly, many of them find themselves married to a person with very different values, goals and habits concerning money. Financial planning and goal setting become essential when two people get married and start sharing their incomes. They need to learn to run a household together. Furthermore, they will be tested during times of hardship when a spouse may have lost a job or is taking time off, for example to have a baby. They need to take care of and manage expenses which are the basis of financial planning.
Financial planning means realising your dreams in a structured way. Without a structured plan in place, you may splurge your money on un-prioritized needs, thus preventing you from achieving your bigger, long-term goals.

Financial Planning Tips
Update financial documents: A marriage certificate is the first important document that needs to be made and filed by the couple. They may even opt to write a Power of Attorney in favour of each other to save themselves from legal problems in future.
To merge or not?: There is no universal right answer to the question of whether to merge your accounts or keep them separate. What’s most important is to agree on what works for you both. Both partners can have joint accounts with alternate first names. All the future investments should be in joint names and nomination is a must for all the other investments.
Open communication is the key to a happy union: Before marriage, both partners need to be completely honest about their debt, income and spending habits. Total income needs to be disclosed before marriage as financial surprises post marriage can be perceived as deceit.
Discuss money matters ‘regularly’: There is no rulebook on how a couple ‘should’ manage their finances once the wedding is over; There is no ‘one-size-fits-all’ answer. Try to figure out what works for both of you. For instance, sometimes, one of the partners is probably naturally suited for money management, so let that person take the lead. Communicate with each other on important financial information. Trust is the building block as in any other aspect of the relationship. However, make sure both are informed of all that is financially going on and is able to manage things if the other is sick, unavailable or a crisis situation arises.
Make each dream a reality: Every couple would have hopes and aspirations upon their marriage such as, to buy a new home, take an overseas trip, etc. but may not be decisively working towards these goals. Quantifying your goals into money terms and giving them a time frame will help reach your goals more efficiently.
Let’s look at some questions that a newly married couple faces:
Are we going to buy a new home/new vehicle…if yes, then when? - You might want Rs 40, 00, 00 (in today’s value) for a house today, Rs 8, 00, 000 (in today’s value) for a car next year. The longer-term goals may be - child’s education and marriage, your retirement etc.
How much should we aim at saving each month? - Once your goals are written down, you can clearly see what you need and find out how much you need to save today in order to meet these goals. When you quantify your future goals into monetary terms, the idea of ‘savings’ changes– from ‘what’s left over’ to ‘a target that needs to be reached every month’.

How to reach your goals?
Create an emergency fund: The first step to financial freedom is to create an emergency fund. Why an emergency fund, you may ask? Look at the world around you. Job security has declined in recent times. During the last economic recession, many lost their jobs. A job loss can cause severe cash flow problems for a working couple – forcing them to alter their lifestyle and causing a dent in their investment plans. The scenario becomes even worse in case of a single-income couple.
An emergency/contingency fund keeps life on track if there is a temporary loss of income of either or both partners. One should maintain an emergency fund to take care of the couple’s monthly expenses for at least 6 months, ideally. Maintain the emergency fund in an investment where you can easily withdraw it in case of need – you may opt for your bank’s savings account (by way of auto-sweep facility) or invest in liquid mutual funds. Often a liquid mutual fund will offer more interest and is worth using.
Maintain a monthly household budget diary: ‘A monthly budget diary’? Is it even necessary? We can keep track of our monthly expenses through credit card bills, you may argue. But a budget diary does more wonders than you think. It assists in managing your household monthly cash flow efficiently. It is a great tool to track impulsive purchases made by you, analyse your spending patterns, and see where money is being wasted and where lifestyle changes are possible. This way, you can divert unproductive expenses into investments suited for your specific goals.
How to do it?: Figure out your aggregate income and expenses and divide them into fixed and variable — this is an easy way to know which costs need to be cut down. Set targets and priorities for each. You can create a budget diary yourself or it can be done online. You can also go for a monthly budgeting tool available online or a budget planner which you can buy from a retail store where you can manage your monthly record of income and expenses.
Financially secure your dependants: One of the most important steps towards a sound financial plan for newly married couples is to get each other insured. Family needs vary for each lifecycle stage. For a young, unmarried person with no dependants – life insurance is not a priority. But the minute he gets married, he has a dependant in the form of his wife (dependant or not) and so, life, health and accident/disability insurance become priorities. When kids come along and your parents too become your dependants, the outlay on your life and health insurance will increase. However, even when not married, always keep health insurance so that if you incur a major illness or accident, your family will not be burdened. Ideally, one should purchase an additional health cover and not depend only on the one provided by one’s employer as this holds ground on periods of unemployment. Besides, the younger you are when you buy a health and life plan, the cheaper it will come.
While purchasing health insurance especially for elderly dependants disclose all the diseases and check for exclusion of all the known or unknown ailments.
Please note that even if both the partners are financially independent, it is wiser to purchase life insurance on each other’s name. Once children come into the picture, the nomination can always be changed in their favour without affecting any increase in premium. However, when children are young, the life insurance payment would still need to go to the surviving spouse who would need that money to raise the children.
Save, Invest and Prosper: Your savings need to be invested to earn you returns in order to achieve your broader goals. Ideally, a couple must invest as per their risk profile. Good planning also lies in the right asset allocation i.e. the choice of assets you invest in. Have a mix of assets - like post-office saving schemes, bank term deposits, gold, mutual funds, company shares, real estate etc. This will help steady your returns and reduce the total risk of loss, even if one investment goes bad. Depending on your risk profile you could opt for a mix of debt and equity assets.
The key question is how much money is to be put in safe investments and what amount should go towards risk taking. There is no fixed answer. The thumb rule is 100 minus your age can be invested in risk taking investments such as equities etc. the remaining can be devoted towards risk free of safe investments such as Fixed Deposits with banks, fixed deposits with Post Office etc.. Another important aspect one should consider is easy liquidity of funds in times of emergency.
As the couple comes to terms with veracity of life one cannot avoid the TAXMAN. The couple must take into account the taxes and all the investments avenues should be tax friendly. Considering the realities of taxes the investments for taxes should be preferably long term. Some of the long term investments are PPF, NSC, Life insurance etc.
Re-evaluate your financial plan at regular intervals: ‘So is it enough to plan once in a lifetime?’ – No. A financial plan needs to be revisited whenever there is any change in your life – addition to your family, change in job, when your family moves from a double income structure to a single income one or vice-versa.
With all these sound financial planning steps outlined for you, it will be much easier for you to assess your financial goals as a couple and work towards them as a team. Learn to share, be honest and responsible. These are the core values that will help you avoid tension or hiccups and increase your confidence and security.

With inputs from Dhananjay Paranjape, Chartered Accontant

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