Newly married? Congratulations.
After all the music and celebrations of marriage die down, a new life starts and it is time to get back to the business of living like others. For the couple, this is a precious time – time to know each other, understand the family cultures and habits and to commodate to each other's lives. The time spent together learning about each other would be cherished for the rest of their lives.
Marriage is a true partnership between two individuals. As is mostly the case today, both individuals are earning and financially independent. As a new partnership begins, there are certain things to be considered also on the financial front – mutually. An open, transparent and realistic financial assessment and subsequent actions also may be done at this important juncture of life. So what is this assessment and actions we are talking about?
Identifying your financial goals:
The first step is identifying your shared financial goals. What can be these goals? It can be anything like – higher studies, buying of own house, buying a car, vacation plans, repaying existing loans, starting a family and so on. After settling in life, identifying your financial goals is the first important thing to do. However, finalising your goals sounds easy and may rather be difficult to finalise the same. So here is what one can do...
Discuss each other's dreams and aspirations and also the priority for same. One should be reasonable in their dreams and also be considerate to the present financial situation.
Dig deeper into what exactly is the goal – buying a home may sound ok but it is not. One needs to identify what type of house, how big should be the house, which locality, what amenities, when exactly is it targeted, etc. Only then the real picture can be drawn for the goal.
Put out an approximate target value to each of the goals, considering the inflation for the targeted period.
After the goals are shortlisted and break down the goals into short – medium – long term goals.
Prepare the financial plans:
After the goals along with time horizons are mutually agreed, the next step is to plan your finances. This starts with sharing the income and expenses budgets for the month between the couple. Estimated household expenses will have to be deducted from the combined income. The couple may mutually share some of the expenses between them. The balance savings will have to be directed towards the goals. You may also like to consolidate all your assets and liabilities to find the true financial picture for both. An expert can be consulted for doing this entire exercise.
Once the financial plans are ready and you have your savings plan also ready with you, it is time for action. Choose the right asset class and products to invest in. There are a few things you need to keep in mind here too especially beyond financial goals. Every newly married couple should explore the following popular products...
Needless to say, life insurance is the most important thing you have to buy for the financial security of your new family. A pure term plan that gives the maximum financial security is a must-buy product. This will protect your spouse and also your family in case anything happens to either of you. Remember to buy the life insurance covers individually for both husband and wife.
The early you buy a life cover, the cheaper it is. Further, any medical condition developing at a later stage will also increase your premiums later. So it is better to buy term insurance of a good amount early in life.
Protection against health insurance is also now a big priority for you. With escalating health and medical costs, it will become increasingly difficult to manage affairs in case of medical emergencies. Note that the cover provided by your employer may not be adequate for and/or cover both of you. It is recommended that you buy an independent health cover to cover your family. The amount of cover should be at least 10 lakhs considering medical inflation today.
It is also highly recommended that you cover your parents in some health plans, even if they are financially sound. Medical care for the elderly is becoming very costly and having insurance as a backup plan is highly recommended. Perhaps it may be the right time start health insurance as your parent's age may not be too high now and policies would be available. As they age further and medical conditions develop, the policies will be hard to get by and also may be very expensive.
Sharing /update of records:
Another important activity a couple should do is to share the important financial records and documentation. Records should also be updated w.r.t. say nomination, company records for insurance, etc. Sharing of such financial information would make life easy for your partner to manage the state of affairs in case of any emergency or your absence.
Mutual Fund SIP:
From the savings plan that you have drawn for yourself, a mutual fund SIP is today like a no brainer. Done with a long term investment horizon of say at least 7-10 years, this investment method promises to deliver decent, inflation-beating returns better than any asset class. A SIP is an ideal way to invest for your long term financial goals and also for wealth creation purpose. The sooner you start, the more you save, the better it is for you.
A SIP helps you the best by enabling you to save little amounts every one from your budget. This SIP amount can also be increased automatically at a set frequency (say every six months or yearly) to match with growth in your income. It is important to note, however, that equities are a risky asset class and investments should not be done for a short term.
It is also recommended that you create a small emergency fund for the family. This emergency fund can be an equivalent of say three to six months of your household expenses. The fund will keep you better prepared to manage and handle any financial emergency or temporary shocks you may come across in the short term.
A marriage is a beautiful creation of society and mutual love and trust can make it even more wonderful. With proper financial planning and timely actions, you would also lay strong financial foundations for the long journey ahead. These financial foundations are not to be ignored as they will prove themselves and make your relationship even stronger as you go out into the world creating our own space.