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Happily ever after, financially

December 21, 2015 12:39 IST

Illustration by Uttam Ghosh/Rediff.comHere's what newly-weds could do to smoothly integrate their incomes, expenses, financial values and risk appetites

When two people with different attitudes towards money come together, defining common goals and forging a single path towards achieving those can be a challenge.

But such newly-wed couples can plan for a financially secure future.

A new couple’s financial situation changes from their bachelor days.

If the wife also works, the combined income becomes substantial.

If they live with the boy’s parents, they can save a lot.

If both partners lived on rent before marriage, they can save by paying only one rent  now.

But, if they were living with parents and now move into a house of their own, their expenses rise and there is lesser scope for saving.

While people do save and invest prior to marriage, it is rarely done with specific goals in mind.

After marriage, a new sense of responsibility and urgency goads couples to invest for specific goals.

After marriage, two people with different levels of risk appetite come together.

One might have come from a background where a family member lost money in the stock markets.

Another could belong to a family that owes its wealth to the employee stock options. “If the two partners have markedly different attitudes towards risky assets, a reconciliation of different levels of risk tolerance needs to take place,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

Let us see how couples need to work together on different facets of their financial lives.

Savings: A newly-wed couple should aim to save and invest 20 per cent of their take-home salary.

They should use the period between marriage and the arrival of a child to create a corpus.

Expenses: When you live independently, you can spend according to own whims and fancies.

Now, you must take your spouse’s attitudes into consideration.

Earlier, you might have spent Rs 2,000 on an evening out with friends every weekend.

In your eyes the expense may be justified as it helps you unwind but a frugal-minded spouse could see it as wasteful.

Loans: Married couples’ combined income makes them eligible for a higher loan amount.

However, this is a double-edged sword. “It is not certain how long the double-income status will last.

Once a child comes along, the household might again turn single income.

Hence, we caution newly-weds against taking on too much leverage,” says Dhawan.

If there is an education loan, the couple might continue with equated monthly instalments instead of pre-paying, provided the EMI is not too large.

Tax deduction without any upper limit is available on interest repaid (under Section 80E) on this loan.

When buying a car, they shouldn’t buy the most expensive one they can afford, based on their combined loan eligibility.

“Take only the loan amount you are eligible for based on one partner’s salary and for a tenure of three years,” says Ankur Kapur, founder of Ankur Kapur Advisory. Avoid buying too many consumer durables on on EMI.

If you plan to take a housing loan, aim to pay it off within eight years.

Life insurance: While the husband usually takes adequate life insurance, the wife is often not covered sufficiently.

The couple should buy enough, based on a calculation of human capital value and to cover various goals and responsibilities.

After marriage, couples should define their responsibilities towards their spouse and children (yet unborn) on the one hand and towards dependent parents and siblings on the other.

Based on these needs, they should buy adequate insurance and also nominate different categories of beneficiaries clearly, to ensure that in an eventuality, the money goes to the person it was intended for. Extra term insurance should be purchased to cover the liability from a home loan.

Health insurance: After marriage, get your spouse’s name added to the health cover provided by your employer.

Earlier, if you had an individual policy, shift to a family floater. Shift your parents to individual policies with adequate sum insured. Including them in your floater will make it expensive.

Investing: The process of finalising goals can at times lead to friction.

Financial security might be a priority for one; another could be ambivalent.

If one partner is debt-averse, she might want to settle for a smaller house, while another could be game to take on a big loan and buy a bigger house.

A financial planner can help reconcile conflicting goals, also ensuring that goal setting is structured and the implementation is thorough.

Some goals like saving for a down payment on a house and for a child’s upbringing loom over a three-five year horizon.

Couples should save for near-term goals in low-risk to medium-risk instruments like fixed deposits and short-term bonds,” suggests Kapur.

If there is still some surplus left, couples should invest for long-term goals like a child’s higher education or marriage and their own retirement.

Even small amounts saved towards these goals can result in a large corpus over time.

Begin with low-risk instruments like Public Provident Fund, and then move to a combination of large- and mid-cap mutual funds.

Making the financial bond stronger

Five do’s for newly-weds

  • Try to save about 20 per cent of take-home salary
  • Continue the EMI on education loan to avail tax benefit
  • Ensure both husband and wife have sufficient term cover
  • Add spouse to your employer’s health cover
  • Try to optimise the tax benefit available on health cover

And, five don’ts

  • Don’t spend on things your spouse might regard as wasteful
  • Avoid the high leverage you are eligible for on combined salary
  • Avoid too much personal, credit card and consumer durable loans
  • Don’t include parents in your floater health cover
  • Don’t exclude spouse’s risk appetite when investing

Illustration: Uttam Ghosh/Rediff.com

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Sanjay Kumar Singh
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