Financial Tips For Newlyweds
Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.
Money management emerges as one of the key aspects once a newlywed couple returns to the humdrum of everyday life. Considering the challenge of managing seemingly unlimited needs with limited resources, many young couples get overwhelmed by this situation. Hence, the focus should be on developing good savings and spending habits as well as learn the significance of budgeting. With their finances in order, they can hope to have peace of mind to focus on taking the next step in their relationship, enjoying this special time and building a life together. Here’s what can help newly married couples in good money management.
Discuss Money Management - An open conversation can help a newly married couple in understanding each other’s financial standing i.e. income, expenses, investments, loans and any other assets. Besides, it will help in ascertaining the risk-taking capacity as well as work out the synergies required to achieve different financial goals.
Discuss Bank Accounts - The key decision for a newly married couple 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. Having a separate account is generally a great idea for a working couple.
Establish Financial Goals - Today’s complex financial environment requires judicious money management to ensure availability of adequate financial resources at every stage of one’s life. Having a financial plan in place and a strategy to implement can help the couple in choosing the right mix of investment options and allocate appropriate funds for all their goals. The asset allocation process, which is an integral part of financial planning, would largely determine the level of risk and the likely returns from a couple’s 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 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?
Create an Emergency Fund - Before starting the investment process, the priority should be to create an emergency fund. An emergency fund is needed to not only take care of anything unexpected that might come along but also to allow the couple to continue their long-term investment process without any interruption. Above all, it will provide peace of mind to the newlyweds, which is crucial at the early stage of their married life. The size of an emergency fund is something that the couple needs to decide taking into consideration various factors.
These would include their monthly expenses, level of liquidity in the investment portfolio and the kind of jobs they do. 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 level of liquidity, tax efficiency and decent returns. Some of the options that can be considered are bank’s savings account with auto-sweep facility, liquid and | or ultra shortterm funds.
Manage Debt Efficiently - In today’s world, it is practically impossible to live a debt-free life. However, the impact of a loan on the overall financial health of a couple 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 of the couple’s life but also in saving taxes – more savings in case of a joint loan. On the other hand, indiscreet use of credit card may result in a disaster with long lasting financial implications. Therefore, it makes sense to keep the credit card usage within a reasonable limit. Managing debt efficiently can go a long way in helping young couples stabilise their future