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Article Summary
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Of the many profound changes that come with marriage, merging of two distinct financial worlds is one on top of the list. While it may appear daunting to some newly married couples, it need not be that way. Here is a broad roadmap to kick start financial planning for newly married couples.
Before Marriage
A host of steps taken before marriage can lessen the financial burden for newly married couples. Here are some key steps.
Share financial information In the lead up to the marriage, couples need to share information about their existing finances and discuss future course of action. This is especially so for investments and loans. For instance, how EMIs of existing loans and existing investments will be serviced.
Discuss managing of expenses This basically covers regular and imminent expenses. For instance, in case of a double income couple, different expenses could be earmarked to each spouse. Or one spouse could meet all the regular expenses like rent and utilities while the other could handle existing and future investments for retirement and children’s higher education.
Determine individual and joint goals Individual goals can range from mid-career courses, acquisitions of big-ticket gadgets and creating a seed fund for own start-up. Whereas, joint financial goals can be buying a home, children’s higher education, and retirement. Various goals will also determine the selection of investment options and amounts.
After Marriage
Create a system of regular savings Successful financial planning of newly married couples involves achieving a harmonious balance between meeting regular and imminent expenses and investing for the future. Experts suggest the 50-20-30 rule where 50% of take-home pay is earmarked for saving/investments, with 20% for loan repayments and 30% for expenses. Couples finding it difficult to implement this could start with 30% of take home pay for investments, avoid expensive loans like personal loans and high credit card bills, and subsequently raise the share of investments.
Ensure adequate protection Along with goal-based investments, financial planning for newly married couples requires adequate protection with insurance. This means having adequate insurance protection for life, health, income, and assets like a car.
Create an emergency fund As insurance plans cannot cover all kinds of emergencies, for uninsurable emergencies, married couples may set up an emergency fund. This can help them address expenses related to medical emergencies, job loss and income loss due to relocation after marriage and childbirth.
Emergency fund can typically be 3-6 months of expenses depending on the nature of emergencies anticipated. The money can be parked in a bank savings account and short term bank fixed deposits (FDs). This can be supplemented by mutual fund investing in liquid funds and short term debt funds like ultra short term debt funds.
Invest for individual and joint goals For other individual goals like mid-career course and joint financial goals like retirement, couples can consider different investment options. This can again be conveniently done with mutual fund investing through SIPs in different mutual fund schemes. Here are two examples.
Lower risk debt funds like short term debt funds may be earmarked for short term needs like a dream vacation in 18-24 months. On the other hand, higher risk equity, and equity-oriented hybrid funds may be earmarked for long term future needs like retirement.
With pay hikes, newly married couples can consider increasing SIP amounts for existing investments. Or they could also opt for Top Up or Step Up SIPs where the regular investment amount is periodically increased, by a predetermined percentage, say 10%, annually.
Estate planning Lastly, married couples should discuss the importance of having wills, trusts, and other estate planning documents. They should aim to review and update beneficiaries and policies regularly.
To sum up, there is so much more than financial planning for newly married couples that will determine the success of their matrimony. Yet, with the right financial planning, they can aim to fulfil their every dream.
FAQs
1.Why is it important for married couples to align their financial goals together?
Effective financial planning can strengthen relationships and provide stability. Aligning common financial goals like home buying, children’s education and retirement planning as a couple fosters unity and strengthens their relationship. By setting joint financial goals, couples can develop a comprehensive financial plan that takes into account both partners' aspirations, priorities, and timelines.
2. How does mutual fund investing help newly married couples get started towards their financial goals?
Regular investments through Systematic Investment Plan (SIP) facility offered by mutual funds can help newly married couples start regular investments for different goals with amounts as small as Rs 500. This amount varies with different schemes and asset management companies.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.