How married couples can plan their finances better
It is better to start early, keep each other in the loop when it comes to money matters of the family. Regular savings can help build large funds without getting pinched.
Varun(34) and Seema (31) have been married for 6 years now and they both work in the IT sector in Mumbai. Having come from financially sound families, they have always preferred to maintain a good lifestyle and most of their weekends are spent in malls and outings. Inspite of earning a joint income of Rs. 1.40 lakh a month, their investments comprise of a few insurance policies and a bank balance of Rs. 2 lakh. A closer look at their finances reveal that nearly 80% of their monthly income goes away as expenses towards grocery, home and car loan EMI and other lifestyle expenses. Whatever remains gets accumulated in the savings account which again gets utilized for vacations and festival purchases, leaving the family precariously placed if any financial emergency were to strike. They dream of providing the best education to their five year old son and also want to retire early but their dream may only remain a dream if they don’t act fast.
Mihir(51) and Usha (50) have recently completed 25 years of their married life during which they faced some years of financial difficulty. Usha has been insisting that Mihir take out time to discuss and plan their retirement which is due in a few years’ time but Mihir, like always has avoided the issue. Since his job involves a lot of travelling, he is seldom at home during weekends to discuss the important topic of retirement. Here Usha is taking the initiative but is not supported by her husband. The past bitter experiences of financial difficulties have not had any effect on Mihir.
These two are classic examples of couples ignoring financial planning activity. And there are many such couples around. It is only when a financial emergency strikes, does the family gets serious about taking stock of their finances. In order to avoid unpleasant situations regarding finances, couples need to take a few steps as enumerated below.
1. Budgeting: This is the most basic requirement if you really want to put your finances in order. Unless you know how you spend your money every month, you would not know your capacity to save. Budgeting also helps throw light on how you are spending on each category of your expense. For example, if you are an avid shopper, tracking your expenses will bring to light this fact and enable corrective action. Ideally one partner should take up this responsibility to write down the expenses. Nowadays there are many online applications available which can be used for budgeting. If you are a working couple then the expenses can be shared equally and surpluses can be invested in each spouse’s name separately.
2. Create a healthy ‘Communication System’: Many times the wife gets to know that her husband has purchased an insurance policy or has invested in a particular investment scheme only when the policy document/ statement arrives at home. This could be due to lack of confidence in the spouse’s ability to understand and help in decision making or it could also be due to lack of proper communication between the couple. It has been observed that women have an innate ability to probe thoroughly on any matters before they take their decision. Involving the wife while making important financial decisions on any financial goal or investment product helps discover different perspectives which help take an informed decision. Therefore encouraging a healthy communication system at home is very vital. In this fast paced world filled with gadgets, it seems difficult to find time for a healthy communication but it’s not impossible. Joint decision making helps nail all doubts and keeps the couple abreast of all the financial decisions taken and the products purchased. If you are involving an advisor then ensure that both the husband and wife are present during all advisor meetings.
3. Start investing as early as possible: Generally married couples take investing seriously only after the birth of their child or in their late 30s. Rather if they start investing from the year of their marriage, it will help in creating good corpus for their various requirements ahead. A simple product like a recurring deposit can be started to fund your planned vacation every year rather than using your credit card or other expensive options. Ensure adequate life and health insurance is taken for each working spouse. SIPs in mutual funds can be started as per your financial goals. The most important benefit of regular investment like RD or SIP is that the money is deducted from your bank account leaving you little option to overspend while the investments quietly grow bigger and bigger with each passing month through compounding.
For those couples who are in their 40s and above category, it is still not late to start working on your finances. A simple step as creating a contingency fund or buying an adequate health insurance cover can also be useful in preventing erosion of savings. In each couple, one of the two will have to take the lead and start the financial planning activity as someone has to take charge if the family has to benefit.
Steven is a member of The Financial Planners’ Guild , India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards