Amit Kukreja In today’s times double income families, where husband and wife both earn a salary, are very common. However, how many of them are aligned in their journey to achieving their financial goals is an interesting question. Couples generally take some time to get used to living with each other. To understand each other’s “money personality” would require them more time before they collaboratively take actions to financially secure their future. Let’s look at some important aspects of financial planning for double income families.1. Finding a common groundIt begins with agreement on goals and jointly taking accountability; Understanding the working span of each earning member, who contributes in what proportion and timeframe towards identified financial goals, who is going to stop working first and why, how is each member’s earnings contributing to funding of retirement corpus, vacations and supporting parents etc is the crux of financial planning for a family with two earning members. The clarity of goals and action plan cannot be put on a back-burner. If getting on the same page is causing disharmony between the partners, then engaging an advisor would help. Once they set their priorities right with consensus, the rest of the life is a smooth sail towards attainment of their goals. 2. Don’t under-estimate the difference between two money personalitiesDealing with two individual earning members means dealing with two different money personalities. One’s relationship with money could be totally opposite to the other. Their risk tolerance could vary depending on their childhood & past experience and so could their response to suggestions and recommendation that they receive from the people around them. One could be a high-risk taker and the other could be a very conservative investor. One could be a reckless spender and the other could be a penny-pincher; one could be a believer in real estate investments only and the other could be an ardent believer of fixed-deposits; Understanding their money-personality and helping them arrive at a risk level that will make sense to build corpus that beats inflation and yet does not take investment decisions too far away from their decision that they would take naturally would be the right way for them to achieve financial well-being. Engaging an advisor to arrive at the middle path should help unless the couple can agree within themselves and close objectively what’s required for their financial well-being.3. Create joint accounts for expenses and investmentsWhile earning members would have their respective salary accounts, it is essential that they create joint expense account and investment account. They should contribute to the joint accounts in proportion of their earnings or any other rationale that has been reviewed and agreed by them. Once the cashflow is structured towards expense and investment accounts, tracking money becomes very easy. It will also help build accountability. If the couple exceeds their monthly expense limit they would come to know easily. Investments can be structured based on individual tax brackets and monthly surplus in each account. This will not only inculcate discipline but will also help make money management teamwork.4. Review your insurance frameworkEarning couples shoulder responsibilities so the dependencies on them cannot be ignored. Reviewing their life insurance, health insurance, home insurance, disability and personal accident insurance, and motor insurance is the minimum that they should do to ensure a strong insurance framework in place. Availing tax exemptions individually given both of them are earning members would help save money that can be invested.5. Rationalize spending and investingEarning members in a household have varying spend patterns. For example a couple in their initial years of career may spend a lot on gadgets, on clothes and accessories, on automobiles and/or auto accessories. Their spending patterns can delay their investments. Overspending on things that they probably don’t need but just want, may delay reaching their financial goals. Young couples usually live from paycheck to paycheck because they don’t see a need for saving for the future. They assume that their gradual increase in income will support their upcoming financial commitments. What they don’t realize is that with time not only will their salaries increase but so would the cost of living. Middle aged couples may spend a lot on the fulfillment of desires of their kids. In any case, the spend patterns must be analyzed. The outcome of systematic investments over unnecessary expenses once rationalized may motivate couples to change their spending pattern to investing pattern.6. Asset ownership must be cleanAs you channelize your monthly surplus to investments, the couples must ensure that assets are not only jointly owned but should be owned in the proportion of money contributed by each earning member. We have seen repeatedly that if one member funds expense budget and the other one buying of assets, then later in life this arrangement may backfire not only from the taxation point of view but also financially if things go awry in a relationship. Having your spouse as co-owner also creates a level of security. EMIs should also be split in the same proportion as the asset ownership. However due to cash crunch if one spouse chooses to fund the entire EMI as a stop gap arrangement, then the consequences must be understood before it is being done.Financial planning takes time and dedication, which double-income families may not always have. Building money management skill and experience can help couples make the most of their time and money without putting too much pressure on either individual.
Amit 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.