As a couple, who has just embarked on the ‘married life’ journey, one of the most important topics to discuss and get a common understanding of, is the financial aspect of your lives. I am sure this topic is at the top of your minds, but sometimes it is not discussed much as it can be complex at times. We suggest you begin with the following.
A. Understand your existing finances:
- Understand each other’s post-tax income and financial position, including current savings.
- Calculate your existing monthly expenses and prioritise these expenses.
- Plan to save at least 30% of your combined post-tax earning, if not more.
- Speak with each other on the kind of earnings and monthly savings for the future.
B. Discuss key goals and milestones:
A common understanding on goals is important as this is the first step in giving a sense of direction to your financial decisions.
Long Term goals
- House : Do plan for a home purchase, but don’t be in a hurry
As you plan to purchase your dream house, make sure you understand the larger requirements (where you plan to stay for the long term, office location, etc). It takes time to save for this goal, but if you plan well you will avoid taking any decisions in a hurry, which at times may weigh you down. Plan to save for at least 20-25% of the home value. The rest can come from a home loan.
- Retirement:
Starting to think about, as well as acting on, for your long-term retirement is important. An early start gives you a significant advantage over time. This also requires a long-term commitment.
- Children & Education:
Children is definitely a topic to be covered and over the long-term children’s education related costs – both ongoing and for future education, is an important goal. Increasingly we are seeing children’s education starting to become a significant part of monthly expenses for families.
Short Term Goals
- Car, holidays, etc:
Indulge occasionally but make sure you don’t over spend. It is important you spend wisely on things that matter to you as a family.
- Emergencies
You need to set aside some money for emergency requirements. This could be either for sudden loss of a job or other emergencies. One should have some liquid money set aside, say 6 months of your combined salary, for any such needs.
C. Operational aspects:
- All bank accounts and investment accounts need to have nominee details, so that the asset transfer is easy in the event of demise of any partner.
- Do share your respective bank account details, for ready access in the event of an emergency. This could include ATM password, etc.
- Avoid debt, unless it is for home loans. Minimise borrowing for a car, as it is a depreciating asset.
- A common account for all regular expenses helps both of you understand regular expenses.
D. Where to invest your savings:
- Emergency funds can be invested in liquid funds, for easy liquidity, optimal earnings and, tax efficiency.
- Near term goals, which are less than 2-3 year away can be saved for in liquid funds or some other debt funds
- For tax saving one can use tax saving mutual funds better known as ELSS. Invest to ensure both of you benefit fully from tax exemptions and minimum taxation limits.
- For your longer term goals like retirement, home purchase which is more than 3 years away, and children’s education, a diversified basket of equity mutual funds makes the most sense.
- You will need health insurance for the family, but best rates are through the firm you work for.
- You can go for term life insurance, once clear goals emerge or home EMI starts. Even here, we recommend term life insurance products.
Once you have a plan, do stay committed to the investing journey and review once a quarter.
Wishing you the best on this wonderful journey.
Invest well. Invest safely.