How to plan finances in changing life stages?

We need to have a relook at our financial planning at different stages of life. These are mostly the cases when responsibility either increases or decreases. At such times, our financial planning needs to be relooked for support and take care of our dependents in unfortunate incidences.

For instance, when a person gets married, the responsibility of the spouse adds on, making it imperative to save and plan for spouse as well. Similar is the case of divorce, having children, retirement, moving abroad, etc.

Let’s see what needs to be done to prevent you from nasty surprises down the road. Make sure you take the following steps and plan accordingly to attain financial comfort and freedom.

1. Analyze financial worth and goals

Calculate your net-worth and decide whether you want that to carry on with it or needs to upgrade with changed needs. For instance, if you have a huge loan undergoing, you can pay it off early considering your spouse’s income and save on a lot of interest money. Discuss that taking into consideration the tax and budget implications. Also, in this case, one has to discuss the combined goals and liabilities and plan for them together. It can be anything ranging from buying a house or car or contributing for your child’s education, etc.

Here, it is important to decide your net worth, set the goals and talk with partner whether you want to achieve them jointly or separately. These small things, when planned, can help in making your goals achievable in a much better way. Also, it is advisable to open separate accounts for saving for different goals and make savings and investments towards that goal from that very account. Do not mix-up things as it could end up in confusion, making your goals remain unfulfilled.

2. Update documents as per requirements

Update your records with updated surname, address and beneficiaries, in case you are a recently married/ recently divorced woman. These updations are required in all your financial instruments like bank accounts, insurance policies, health insurance, etc. Change of address, if any, also needs to be updated, in case of men.

Also, if you are a woman, who is going to use your husband’s surname from now on, get one of your valid ID proofs converted to your new name for purposes or usage in future. This will make updations easy for you.

A marriage certificate and power of attorney are most important documents to be made, in case of marriage. Also, there are other instance like that of divorce and children, when you want to change of name of beneficiaries. Update your will, if you have one, or else think about making one now. To save your family from disputes in case you are not around, this is the best time to take up such decisions.

3. Re-plan your insurance cover

With increasing responsibilities, the insurance cover needs to be upgraded as the sum assured provided in the policy should be apt to cover your dependents, including your wife, children, etc. This means, if you as a single are insured for certain amount, considering your responsibilities now, you will need to enhance your insurance cover so that your dependents will be optimally covered.

You can also top-up your existing insurance, in case, it provides you the flexibility to do so, or else buy an additional pure term plan, one that gives death benefits only. This would be a cost-effective option to increase your sum assured. In case you spouse is an earning member, take his or her income into account as well for determining the sum assured required as well as the amount of premium you can afford to pay.

4. Develop a combined financial plan

Create a financial plan for yourself. Note down all the short-term as well as the long-term goals you wish to achieve. Understand your focus of investments, along with your spouse, in case of marriage. Here, you need to help each other out by understanding why the other person has taken a specific course of action to achieve certain target. Share your knowledge and information so that you can better plan your financial to get better returns on income.

Once you have created a financial plan, it is advisable to keep revisiting it at least once in every 3 months, and consider switching, churning or selling and buying investment instruments, in case of better market opportunity or need. If you do not have the time or the inclination to do it, hire a professional financial planner to help you in this venture.

5. Create emergency fund

Once you have dependents, it is advisable to have an emergency fund of at least four- six months of your monthly income in liquid investments or savings bank account. It helps in unfortunate incidences like loss of job or illnesses, which demand liquid funds. One needs to make a larger emergency fund, in case he/ she is the only earner in family.

6. Develop family budget and follow it

To prevent over-spending, it is important to develop a family budget. A budget can also help in case of tempting spending of latest electric gadget or mobile phone, making your long-term goals to go for a toss. Here, you need to list down on your expenses, incomes goals and savings/ investments that need to be done to realize those goals. For tracking your budget and portfolios, you can use financial softwares such as Perfios, Mprofit and Investplus to manage your budget and portfolio.

7. Assign financial responsibilities

In case dual income, it is advisable to distribute the financial responsibilities, reducing the burden on one. In this way, not only both of the partners can save towards the goal but also aim to live a comparatively stress-free life. In case you are the sole-bread winner, decide how much part of your responsibility of paying off bills or debt can your spouse handle. For instance, in case your wife is to go to pay all the bills and loan EMIs, hand her all the money required right on, so that a proper schedule can be made and you do not end up defaulting on any of the required payments.

Communication is the best means through which you can achieve your peace of mind. Sit down and discuss every aspect of financial game plan to create winning strategies for your future.

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