Money Management For Newlyweds

Marriage marks the start of a partnership in all aspects of life, not least of all, the couple’s financial decisions. Managing finances together could be a daunting task for those who have just taken the plunge, and taking a few steps together in this direction could help the partners ease into a comfortable financial zone.

It can be quite a challenge for newly married couples to manage their limited resources with their seemingly unlimited needs. Many young couples get overwhelmed by the thought of saving a large amount of money that they will require to lead a peaceful and happy life. Hence, it is very important to develop good saving and spending habits, as well to as learn to budget. Here are a few tips in this regard:

Key Points

• An open conversation is the key for a newly married couple to understand each other’s financial standing.
• Having separate bank accounts is generally a great idea for a working couple.
• Having a financial plan in place and a strategy to implement it would mean that the couple can allocate funds appropriately for all their goals.
• An emergency fund is needed not only to take care of anything unexpected that may come along, but also to allow the couple to continue their long-term investment process uninterrupted.

Have an open conversation

An open conversation is the key for a newly married couple to understand each other’s financial standing, i.e. income, expenses, investments, loans and any other assets. By discussing these, the couple can hope to find their risk-taking capacity and ascertain how to achieve the perfect synergies required to achieve various financial goals.

Discuss bank accounts

The key issue for newly married couples is whether to have separate bank accounts or to have a joint account. This decision needs to be a practical one, as an emotionally driven decision can backfire. For example, having separate accounts is generally a great idea for a working couple.

Identify financial goals

In today’s complex financial environment, investing money judiciously to ensure that one has enough at every stage of one’s life is becoming increasingly challenging. Financial planning can play an important role here. Having a financial plan in place and a strategy to implement it would mean that the couple can allocate funds appropriately for all their goals.

Goal-based investing can go a long way in ensuring that the couple invests with a clear time horizon and avoids making abrupt changes in their portfolios. The asset allocation process, which is an integral part of financial planning, would largely determine the level of risk and the likely returns from their portfolio. Knowing their goals would also ensure that both take responsibility to achieve them.

Having adequate risk cover in the form of life and health insurance is an important aspect of financial planning. While the thumb rule for life insurance is to have a cover equivalent to 10 years of the annual income, the extent of health insurance cover required will depend upon whether the couple’s employers offer any such facility or not, and if yes, how much that is.

Create an emergency fund

Before starting the investment process, the priority should be to create an emergency fund. An emergency fund is needed not only to take care of anything unexpected that may come along, but also to allow the couple to continue their long-term investment process uninterrupted. Above all, it gives peace of mind to the newlyweds, which is crucial in the early stage of their married life.

The size of the emergency fund is something that the couple needs to decide taking into consideration their monthly expenses, the level of liquidity in the investment portfolio and the kind of jobs that they are engaged in. Ideally, an emergency fund should be enough to take care of the couple’s monthly expenses for at least six months.

It is equally important to invest this emergency fund in options that provide the required levels of liquidity, tax efficiency and decent returns. Some of the options that can be considered are bank savings accounts with auto-sweep facility, as well as ultra short-term and short-term debt funds.

Manage debt efficiently

In today’s world, it is practically impossible to live debt free. However, the impact of a loan on a couple’s overall financial health would depend on the purpose for which a loan is taken. For example, a housing loan not only helps in buying a house at an early stage in the couple’s life but also in saving taxes (greater savings in case of a joint loan).

On the other hand, indiscreet use of credit cards may result in a disaster with long lasting financial implications. Therefore, it makes sense to keep credit card usage within reasonable limits. Managing debt efficiently can go a long way in helping young couples stabilise their future.

Hemant Rustagi
CEO, Wiseinvest Advisors Pvt Ltd.