The big fat wedding is over, guests have left, and you have come back from your honeymoon and settling back into normalcy. This is the start of your life with your partner and there are several areas in which you will need to work together on - finances being one of them. You go from being a single income, single spender to (probably) a double income, double spending pattern. This brings about changes in the spending habits, planning, etc. Let us look at a few steps to easily plan your finances as newlyweds.
One of the most important aspects to discuss is personal finance with your spouse. It doesn’t matter if one of you is finance savvy and the other isn’t as savvy, it is important to discuss finances with each other. Start with all income streams that both of you have, so that you can get a comprehensive idea on the total income level for your family. Then it is important to discuss each of your financial goals, plans, spending habits, saving habits, existing loans if any, etc. This will help in setting up common goals, and take into account joint income and expense levels.
The next step after jotting down the income, expenses, financial goals, etc. one should start preparing a budget. A budget should include all your (and your family’s) expenditure and means of income. By doing so, one can get a clear idea on what your overall expenses and overall income looks like and more importantly how much can be saved. Once you have prepared the budget, take into account various priorities. For example, you have to pay off a loan, while at the same time pay for your child’s education; in these cases you have to prioritize your financial goals and save accordingly.
After marriage, as a couple you have to work together to make your dreams come true, and if both of you are employed, a double income can come in handy for increasing savings without needing to pinch your pockets, for example, one can use one salary for expenses and the other for savings, or you could split the combined income into different portions for spending, saving and investing. In the event that there is only one breadwinner then it is crucial to ensure that savings are high from the initial years, so that there is sufficient money for future expenses thanks to the power of compounding.
Choosing an investment option is an important factor in planning your finance, your money can reap benefit of compounding only through proper investments. Try to choose investment options with respect to your goals, for example, if your goal is to go abroad for a holiday in the next few years, it is advisable for you to invest money in either a debt or balanced fund which has lower volatility and if the need or requirement is very near one should consider investing either in liquid fund or in saving bank account in order to void risk.
For a need which is expected to arise in long term, one can consider investing in equities. However when looking at equity options, one should opt for the Systematic Investment Plan (SIP) route, as one gets benefits from both an up market as well as a down market. Investors investing through SIP's are tend to purchase more units when the market falls and fewer units when the market rises, therefore the average cost per unit declines over a period of time thus being an effective tool of risk management.
It is also advisable to save money in a contingency fund. This money should be used only in the case of emergency, for example say you lost your job and have to pay your EMI's for loans etc, you can use contingency fund money to pay them off until you get placed in a new job. It is very important to note that this money should be maintained as a separate account, apart from your usual savings and investments accounts.
It is important to get the risk cover in place, such as life, medical, auto to ensure that one's family is taken care of in the case of any eventuality. This is a very important step towards financial freedom and peace of mind.
• Prepare a budget and stick to it
• Have a separate contingent fund
• Choose the best investment option with respect to your financial goals