Planning Finances Together After you Tie the Knot
" Love Lasteth Long as the Money " - William Caxton
If wedding bells are ringing for you, it's obviously the most joyous moment of your life! Along with the joy however, you must be mindful of the fact that marriage comes with its fair share of responsibilities. From now onwards you are responsible for each other's finances as well and must chalk out your financial goals together, so as to avoid problems in your marriage later, especially if you are both going to be earning members of the family.
Here are Some Tips to Get your Finances in Order Before you Begin your Married Life
Discuss Money Matters
Yes, it's lovely to whisper sweet nothings and have your head in the clouds when you are just married, but you must also acknowledge the fact that money matters are important and bring issues on the table. Discuss your finances, your current and future earnings and chalk out short term, mid term and long term financial goals together.
Keep Purchases and Debt Under Control
When couples are newly married, they tend to go on shopping sprees to do up their new nest. Often this kind of shopping may go out of control and thus they end up spending a lot on their credit cards, which is way beyond their repayment capabilities. As a result, they are neck deep in debt even before married life has truly begun. In order to avoid such situations, keep a check on your spending and purchase one thing at a time.
Establish a Joint Account
When you get married, the idea of merging your finances immediately may be intimidating, especially if you are both career oriented people, so begin with setting up one joint account where both of you can contribute initially towards utilities, house rent or EMI and child care expenses at a later date. How much you contribute towards this account, is entirely your judgement call and there is no right or wrong here. This is a good place to figure out how you can work in tandem to make things work for you in the long term.
Set up an Emergency Fund
Carve out an emergency fund out of your savings. You do not want to think about any kind of mishaps when you just get married, but uncertainty is a part and parcel of life you cannot ignore. Having an emergency fund will see you through the rainy days or mishaps like a sudden loss of a job, an accident or an illness. Therefore, even if both of you do not have a paycheck coming in temporarily, it will not strain your finances and keep your tempers from soaring as well!
Financial planning goals will evolve as you as a couple goes through the several cycles of life and assume new roles and responsibilities as you grow older. It is therefore necessary to chalk out a financial plan together as soon as you get married and assess your goals and the performance of your portfolio from time to time. If you do not know where to begin, here is a ready recknor to give you a headstart.
Short Term Goals
- Draw up a monthly budget using your joint income as a yardstick.
- Accumulate as much savings- depending upon your monthly income, save at least 10 per cent or more after meeting your expenses.
- See that you have adequate insurance cover, in life and health and asset insurance (in case you have already purchased a house before your marriage.)
- Get into retirement planning immediately, and start investing in a disciplined manner right away in various pension schemes available today.
- Be wary of incidental expenses- When you are newly married, there is a strong desire either to purchase stuff for home improvement or to go on vacations, but do bear in mind that such expenses should not add to your debt pile. The best thing is to set aside a fund that you can fuel after you have met all your expenses and have made adequate investments.
Medium Term Goals
- Education of your children- Start saving up for your first child from the time you have conceived or at least from his or her birth. Set aside a fixed amount of money each month in a recurring deposit or a systematic investment plan or SIP of a mutual fund, so that you have a decent corpus by the time your child begins school.
- Realty needs- If you already have a home loan running, think of ways and means to pre pay it, with bonus payments or any windfall gains you may have made from elsewhere like a gift or an inheritance. The money you save on your EMI can then be invested in any other asset class.
- Reassess your retirement fund and see if you can make a higher allocation there.
- Incidental expenses will continue as your child enters his or her growing years. Invest some surplus to fuel a fund that can take care of such expenses.
Long Term Goals
- Higher education of children- An education fund should be built for your child at an early age and you should continue to invest in it till the time the actual expense comes up.
- Marriage of your children- This should also start at an early stage probably after you have bought your own house.
- Estate planning- Once you have settled down and have built up enough assets, you must chalk out a proper inheritance plan to leave your assets in the hands of your children.