7 financial planning tips for couples

Money is one of the biggest discord among newlyweds, especially in big cities. Problem of spending and investing as 'I' among married couples instead of 'We' is one of biggest problem behind poor investment decisions. It basically arises from lack of communication. Most people don't communicate their investment decisions to family members due to oversight or procrastination.

In addition, individualism too is creeping into personal finance these days and couples are steadfastly refusing to share their financial information with each other. It's unbelievable but true. If I earn, I have all right to decide where I spend (forget about investments) is the reasoning.

Sharing salary details, annual bonus, credit card limits with partner is an absolute no-no. For them, it's giving other person space in money matters. In a nutshell, ignorance is bliss when it comes to each other's finances.

Notion of individualism and financial independence could defeat the very purpose of sound financial planning. If one doesn't know what other is doing with the money it can be disastrous. Hiding some huge debt is also sometimes one of reasons not to share financial information with partner. But they often forget that one needs to find solution to the problem and not to aggravate it.

In addition, it is significant to come to terms with financial reality after marriage. Single income can convert to double, but so can debts; buying assets may become easier, but insurance liability could increase; your spending or savings habits could be disastrous mismatch, but your long term goals may be same.

In some cases, money can be reason for all the marital discords.

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Courtesy: Investment-mantra.in

So what's the solution?

1. Be open about your financial health and spending habits

Make sure you talk, discuss, debate, and communicate as regards planning your combined finances. Be it your income or expenses, savings or debts, liabilities or assets, habits or cravings -- talk about everything in detail. Talking not only helps meet your goals but also irons out misunderstandings and differences. Also it is significant in the context that it keeps both partners in the loop and in the absence of one spouse; the other is not left in the lurch.

Make sure you list out your debts such as car loan or credit card bills and assets like jewellery, real estate or stock investments. Do talk about your attitude towards money, your values, what you plan to do with it after marriage.

These inputs will act as building blocks for the new financial equation and make it easier to formulate goals and stick to a plan to achieve this. Make sure at the end of this activity, you have some idea about goals and approximate budget.

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2. Do frame a budget, baseline the goals

In the absence of a budget, it will be impossible to keep tab on your spending which will have a domino effect on your savings and investments. A budget not only inculcates financial discipline and regulates your cash flow, but also makes it that much easy to meet your financial goals. Base lining the goals can be next logical step.

Frame your long and short term goals in accordance with your priorities and earning capacities. Do establish an approximate timeframe for each goal -- it can be buying furniture, car or a house. Also you can talk about financial implications post birth of child, savings required for his/her education and marriage, vacations and of course retirement. It's never too early to start planning and saving for such goals as compounding effect of investments works in your favour.

To ensure fulfillment of objectives, it is critical to make a budget. Start with bigger expenses like home loan EMIs, house rent or insurance premiums and go on to smaller ones such as grocery, utility or credit card bills. A budget that includes tracking your spending is the only way to know where your money is going. It will make sure that that if you need to save more to achieve your goals, you cut down on your spending.

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This is the most significant aspect of financial management for newlyweds. Should one merge the finances? Who will make sure plan is on track? This depends on how couples want to plan it out.

Though one can retain their individual accounts to manage individual expenses, a joint account for household expenses, including grocery or utility bills. There is a flexibility to operate in case of each other's absence. Bottom line is that the couple should be comfortable managing their finances.

Even if one partner is financially savvy, it doesn't mean other one should remain in dark. Both the members should be aware of their investment avenues, savings and expenses, modes of transaction, passwords, due dates for premiums, bills etc. This ensures that in case of eventuality, you are not clue less about your expenses.

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Before marriage and without dependents, an individual can do with relatively small insurance cover than after marriage, especially if you are sole earning member of the family. So a term life insurance is critical. Your cover should be enough to pay out your outstanding loans so that your spouse isn't burdened by it. Ideally you should have 10 times your annual income as life cover.

Upgrading your health insurance is also significant. Even if you are insured by your employer, it is advisable to buy a separate policy. On an average a combined cover of Rs 5 lakh for a couple will be an ideal one but again it depends on other numerous factors.

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5. Know about taxation benefits

As a married couple, one is eligible for high home loan and both can claim tax deduction on repayment. A joint home loan offers a benefit of Rs 1 lakh each under Section 80c of Income Tax Act (for repaying the principal) and additional Rs 1.5 lakh each on the interest repayment under Section 26.

6. Take care of documentation changes

If you go for a name change after marriage, ensure you indulge in necessary paperwork. One of most crucial alterations involving name change is PAN card change, besides passport, KYC, bank account etc. Adding wife's name in all existing insurance policies and investments won't be a bad idea.

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7. Put emergency fund in place

Life comes with no guarantees. So even if both are earning well, it doesn't mean you cannot be waylaid by an accident or an illness. Be prepared for such eventualities and start saving for emergency fund, which should at least stash at least 3 to 6 months worth of expenses.

In a nutshell, working towards a common goal can make things so much easier for you and your partner. 1+1 = 3 remember. Make a consolidated record of investments of you and your wife so far. For instance, every time your SIP is executed make that entry in the file. Details of insurance policies -- amount of life cover, tenure, premium and policy numbers, fixed deposits, PPF deposits, bonds, bank and demat account numbers should be clearly mentioned. Discuss your investments, loans, expenses, budgeting. Idea is to consolidate financial portfolio of both so as to complement each other's investments.

Consolidation basically leads to doing away with the duplication and sub-optimal use of investible surplus. Husband and wife can gain substantially when they combine their financial forces. They are able to manage debt better, buy a bigger life cover for themselves and most importantly have more investible surplus. Harmony in finances will definitely help spend better, yet invest more and avoid duplication.

Planning as 'we' is also significant as to be aware of investments made if one of them meets an untimely death. Though nothing can be more traumatic than loss of dear ones but there could be financial repercussions too if that person has solely handled all investments. Sometimes we tend to be disorganised with our investments as we think that nothing can happen to us.

So it's high time we understand the significance of 'we' so as to lead healthy financial life.