Building a strong foundation

Marriage comes with responsibilities which includes managing family finances. For most people, marriage results in change in their financial circumstances and sets them on a course of major financial decisions that impact their future. Disagreements over financial matters have been the cause of several marital discords. To ensure you do not fall in a similar situation, test your financial compatibility and set ground money rules in your life after discussing with your spouse. Do not let the money conversations ever be one-sided.

Do not leave it for your spouse to handle money matter all by themselves. Be involved with finances; this will not only give you a sense on where you stand, it will also help ensure you both fully understand the situation in case of an emergency. For many, marriage is the first rude shock of waking up to financial consciousness—a step away from their carefree bachelorhood. They are no longer financially answerable to only themselves, which one must realise.

The change in relationship status is also opening to a world of realising financial goals and aspirations; the biggest financial decision of their life, buying a house, happens when they are married. The thought of having children and then getting into planning for their financial future, just the way your parents worked towards yours, could be daunting. All of these are easily achievable, if you follow the planned path.

Take the case of Delhi-based Priyanka Pal, who works as a project manager in an IT company. She is well aware of her new financial responsibilities and has charted out her financial goals in consultation with her spouse Praveen Kumar. “We want to save for my sister-in law’s marriage, buy a bigger car and have a safe future for our kids,” she rattles. The couple got married in 2014 and are presently enjoying the dual income, no kids (DINK) status. The couple has understood their financial situation and are working towards saving more than what they did before marriage.

For Bangalore-based Devesh Verma and Megha, life together started in 2014. As both have a finance background, they were not completely unaware of the need for financial stability and combined plans. “In the long term, I want to become financially independent and after 20 years, I may not be interested in working full time and generate income by managing my investment,” says Verma.

Setting priorities

Financial priorities in the early stage of married life should revolve around listing financial concerns and addressing them. Maintaining a household budget is a good start and listing financial goals with clear timelines would help you set a realistic time frame to achieve them. Irrespective of who earns more, treat the combined money that you bring to the house as one. You could still maintain independent bank accounts, but when planning future financial needs—club the money for better utilisation. And, if you did not believe much in an emergency fund when you were single, now is the time to create an emergency fund.

Insurance is a must—both life and health insurance. If you are covered by your employer, add your spouse’s name and at the same time consider an independent policy for yourself. Also, sign up for a personal accident insurance. “It will provide coverage against death, permanent or partial disability arising out of an accident. This also acts as an income protection for the earning members of the family,” says K.G. Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance.

Now that you do have financial dependents, consider a life insurance policy which is a pure risk cover term plan. “Couples without children should first and foremost consider a term insurance cover— they can also opt for a joint life cover,” suggests Khalid Ahmad, Head- Product Management, PNB MetLife. Even if you are a single income couple, your non-earning spouse should have both life and health insurance. The health plan should include maternity cover, which will come in handy when you are expanding your family. With a family floater health plan, you could include your children later.

The temptation of more money than what you had as a singleton could be tempting. It could also, when used efficiently increase your ability to take and service debt. However, borrow with caution, as borrowing erratically has every possibility of getting you into a debt trap if not managed well. “When taking debt, it is important not to over commit yourself financially. Invest more in long term products to take care of the post retirement need or paying up their existing mortgages if any,” S Ramakrishnan, Head–retail banking and wealth management, HSBC India.

Understand the difference between servicing an asset creating debt versus an asset depleting debt. For instance, borrowing to buy a house is asset creating, while borrowing to buy the latest iPhone is an ego massage and asset depleting.

When deciding on buying a house, plan for it in advance. “Go for a ready-to-move house by taking a home loan to fund it, so that instead of paying rent you can discharge EMIs and claim tax benefits,” says Sanjiv Bajaj, MD, Bajaj Capital. For first time home buyers, there are tax breaks that they can claim, if they land up going in for a house that falls under the affordable housing category. Buy the house with the intent of staying in it than investing in real estate, which is not the best reason to put money in a house.

Avoid these mistakes

Stay away from keeping money idle in the bank. There are efficient alternatives that should be considered to optimise your savings and investments. “By starting early, an investor is able to give more time to grow money or harness the power of compounding. This is beneficial in achieving long-term goals, such as children’s higher education and retirement which typically have a long gestation period,” says Jiju Vidyadharan, director, Funds & Fixed Income, CRISIL Research.

The general tendency to shun equities should be avoided; you should assess your comfort to risk and ensure that you benefit from investing in equities. Says Ashwin Patni , head - products & fund manager, Axis Mutual Fund, “All investors don’t have the same risk taking ability and the same goals in life. The important thing for any investor is to create a personalised financial plan which captures their key goals and timelines.”

Most importantly, do not let complacency set in just because you are a double income family. It is easy to slip into a stage where lifestyle spends increase, which could derail your future finances. Drawing up a financial plan can help; Once a goal-based asset allocation plan is firmed up, make sure you never direct investments meant for specific goals to other, less important or short-term needs. Ensure that you do not postpone tax planning until the last minute—start the exercise in April so that it can be subsumed in your overall financial plan, without squeezing cash flows as the financial year-end approaches.

Priyanka is fully involved with her finances and is making sure her future financial goals are in sync and met. There is a higher capacity to stomach risks by couples who do not have children. Make the best use of your situation by indulging in equities rather than take the safe route to investing in debt and fixed return investments. Do not let money weather a financial storm in your life—stay focused, but not at the expense of forgetting the joys of everyday life with your spouse.

Essential PF checklist for singles

• Have a detailed financial plan
• Have different portfolios for different financial goals
• Take adequate life and health insurance
• Align tax planning with financial goals
• Take risks and invest in equities
• Evaluate performance of investments once a year

preeti.kulkarni@outlookindia.com