Indian families are known to be extremely close-knit, where the needs of the family are always at the centre of everything we do and all the decisions we make. Even when it comes to finances and money matters, we tend to act in the best interest of the family, dutifully and rightfully so. With dual income households becoming the norm, couples today are better set to join forces to not only share a beautiful life together, but also ensure their financial well-being and that of their loved ones.
Financial collaboration can help couples dream big and achieve important milestones individually and collectively. As always, communication is the key. It is important to articulate a joint vision of the present and the future. It will help balance short-term gratification with long-term imperatives.
This should be work-in-progress. Families and their context constantly change and so, it is important to define the broad brush strokes of a shared future. It will reduce dissonance and create happier families in the here and now and in the long-term.
The power of teamwork
Combining financial resources comes with multiple advantages. Not only does it make it a lot easier to manage shared family goals, but also encourages couples to streamline efforts and work as a team. Many prudent couples utilise one partner’s income to run the household, while the other partner’s take home is deployed towards savings and investments.
Here are some instances where financial collaboration works for the benefit of the family.
Standard of living
A bigger savings pool opens up a lot of options for the family to smartly upgrade its lifestyle. The children can go to a better school, elders or those in need can get better medical attention, the family can afford a bigger car, and more.
Also read: Life stage financial planning: How to manage money in your 20s
Fast-track short-term goals
A few tweaks in the budget can make it easier to set aside money for a family vacation, jewellery purchase or to get that new smartphone. It is, however, important that the couple is on the same page and communicates to avoid any surprises or bitterness when it comes to personal spending.
Minimise debt
Excessive and expensive debt can cripple a family’s financial goals. As a family, you can prioritise repayment of high-interest debt that both owe or even refinance under a single loan, making it easier to consolidate and pay as a couple.
Healthcare benefits
The insurance needs of the entire family – from toddlers to senior citizens – can be taken care of within a single family floater plan. Such policies tend to be especially cost-effective for nuclear families and also useful for insuring parents/ in-laws who may otherwise find it difficult to get coverage individually due to their advancing age.
Also read: Life stage financial planning: Time to get serious about money in your 30s
Optimise tax liability
Planning finances together also allows couples to strategize investments in the best way possible to take advantage of rebates/ deductions. For example, if you have two children, each parent can pay the school fees from their account separately and claim a part of it as a deduction under Section 80C.
Securing retirement
Planning for the long haul with your partner also means that you could get to your retirement goals faster. Alternatively, even if the employment of one partner is unexpectedly hampered for whatever reason, goals can be realigned basis the other partner’s income.
Also read: Life stage financial planning: Money management in your 50s, the last decade of active work life
Charting the course
While marriages are supposed to be a 50:50 commitment, finances are most likely not. Money matters have been known to be one of the primary reasons for discord among couples. Whether you’re in a new relationship or have been courting the idea for a while, here’s how you can chart a plan and ensure financial fairness for the long term.
Lay it out
If you are a new couple, the first thing you need to do is lay everything out as an individual, right from income, tax obligations and debt to spending habits. This helps initiate trust and avoid surprises in the future.
Make a roadmap
The next step would be to figure out shared and individual goals. This includes short-term goals such as monthly budgets, medium-term goals such as a foreign vacation and long-term goals such as children’s education and retirement planning. There are many factors to consider, so this may take a while just to list down, share and then act upon.
You, me and us
In a set-up where both partners earn and have individual assets, finding the right balance can be tricky. Either partner should have a separate bank account for individual needs/ expenses and for prudent tax planning, while a joint account can be funded by both towards shared expenses for various goals.
Being fair and equitable
There is a very good possibility that both partners earn differently. So do they share all costs 50:50? What if one partner has a business or is a freelancer where income may vary from month to month? Hence, splitting things right down the middle may not always work. To be fair and equitable, it is recommended that the contribution to the shared expenses be made on the basis of the earning potential and not on absolutes.
In closing
There is no one-size-fits all. Hence, couples need to try to figure out what works best for them. Be honest to yourself and to your partner to minimise interpersonal issues. Create a robust plan for earning, budgeting, spending and investing. Make space for personal goals for yourself, your partner and your kids/ loved ones. Planning resources can simplify some decisions and improve happiness for everyone in the family.
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