Financial lessons for the newly married
The Economic Times
If you have exchanged vows recently, you would need to rejig your expenses and savings structure. Here's how you should go about it.
Now that both of you have decided to take the plunge, among the various angles that you should look at, there is one more that both of you should consider jointly: your finances.
As you move from the ‘single stage’ to the ‘double income no kids’ stage, it is important to note that your priorities, incomes, expenses and savings will all change significantly. (This article addresses the couple where both are working). There are certain strategic and the tactical changes that you should consider and prepare for.
Change in milestones:
One of the pillars of financial planning is identification of milestones. When you are single, milestones are determined by your whims and desires. Talking to each other about your financial milestones will reveal how significantly different your ideas might be; and this will set the stage for a discussion on what the combined milestones should be.
To exemplify, typically singles would live in a rented apartment or with their parents. This gives them the flexibility of moving from one job to another, from one place to another. However, as you begin to ‘settle down’, you begin identifying the city, the locality where you would want to stay for an extended period of time.
This choice would depend on a host of factors , including where both of you see your medium to long term work place, how convenient it is for you to commute to the same. Once the decision is made, invariably, you will start thinking of buying a house, as opposed to renting it.
Another aspect is when you plan to have a kid, and the final number of kids. This is something that you had either very consciously, or assuming the futility of thinking so, had not decided upon when you were single. Now this becomes an important discussion, as it can have career implications in a double income family.
Change in expenses:
Next in line is savings that will be needed during the initial years. It becomes painfully obvious that the amount of savings required will be significant over the initial few years of your marriage. Till the last of your kids go to school after which both of you can go back to work uninterrupted, there will be significant cash outflows (like buying a house and/or a car, child-raising expenses). This will necessitate a re-look at your expense profile.
So whether, it is a new bike that you buy on cue, or that treadmill to burn off your fat that you purchase on impulse, many of these decisions will start getting questioned in light of the bigger milestones that you would have planned. Having led a single life, where expenses almost equalled your incomes (sometime they even exceeded income, thanks to personal loans and credit cards!), you are now faced with a situation where you need to start saving.
Change in income, investments:
A double income helps in mitigating some of the costs (for example, rents and other living costs are shared). You have now to think not just of saving but also of investing the money, so that these investments can help you later. Hence, the transition from no savings, to savings and then investments is complete.
Change in life insurance needs:
When you were single, there was a limited need for insurance (unless you had some dependents like your parents or siblings). You could happily go around without a cover, but that would not be the case once you are married. As the milestones start getting firmer, you need to start risk-proofing them. Milestones like buying a house, upgrading your car will still be around, even in case of an unfortunate incident. Hence, even in a double income family, there is a case for building insurance.
Tactical changes:
Now that you will be investing together, there are some tactical changes that you should think of. One of the most basic is investing in joint names, wherever possible. With the ‘either or survivor’ option, this allows you the flexibility of operating the accounts.
In case joint holdings are not possible (as in PPF, for example), you should definitely nominate each other (or someone near and dear to both like your children). Typically, the youngest person in the consideration set is made the nominee. In case, after marriage, you decide to change your surname (in some cases, even the name is changed), ensure that all your documentation is up to date.
The author is with PARK Financial Advisors
If you have exchanged vows recently, you would need to rejig your expenses and savings structure. Here's how you should go about it.
Now that both of you have decided to take the plunge, among the various angles that you should look at, there is one more that both of you should consider jointly: your finances.
As you move from the ‘single stage’ to the ‘double income no kids’ stage, it is important to note that your priorities, incomes, expenses and savings will all change significantly. (This article addresses the couple where both are working). There are certain strategic and the tactical changes that you should consider and prepare for.
Change in milestones:
One of the pillars of financial planning is identification of milestones. When you are single, milestones are determined by your whims and desires. Talking to each other about your financial milestones will reveal how significantly different your ideas might be; and this will set the stage for a discussion on what the combined milestones should be.
To exemplify, typically singles would live in a rented apartment or with their parents. This gives them the flexibility of moving from one job to another, from one place to another. However, as you begin to ‘settle down’, you begin identifying the city, the locality where you would want to stay for an extended period of time.
This choice would depend on a host of factors , including where both of you see your medium to long term work place, how convenient it is for you to commute to the same. Once the decision is made, invariably, you will start thinking of buying a house, as opposed to renting it.
Another aspect is when you plan to have a kid, and the final number of kids. This is something that you had either very consciously, or assuming the futility of thinking so, had not decided upon when you were single. Now this becomes an important discussion, as it can have career implications in a double income family.
Change in expenses:
Next in line is savings that will be needed during the initial years. It becomes painfully obvious that the amount of savings required will be significant over the initial few years of your marriage. Till the last of your kids go to school after which both of you can go back to work uninterrupted, there will be significant cash outflows (like buying a house and/or a car, child-raising expenses). This will necessitate a re-look at your expense profile.
So whether, it is a new bike that you buy on cue, or that treadmill to burn off your fat that you purchase on impulse, many of these decisions will start getting questioned in light of the bigger milestones that you would have planned. Having led a single life, where expenses almost equalled your incomes (sometime they even exceeded income, thanks to personal loans and credit cards!), you are now faced with a situation where you need to start saving.
Change in income, investments:
A double income helps in mitigating some of the costs (for example, rents and other living costs are shared). You have now to think not just of saving but also of investing the money, so that these investments can help you later. Hence, the transition from no savings, to savings and then investments is complete.
Change in life insurance needs:
When you were single, there was a limited need for insurance (unless you had some dependents like your parents or siblings). You could happily go around without a cover, but that would not be the case once you are married. As the milestones start getting firmer, you need to start risk-proofing them. Milestones like buying a house, upgrading your car will still be around, even in case of an unfortunate incident. Hence, even in a double income family, there is a case for building insurance.
Tactical changes:
Now that you will be investing together, there are some tactical changes that you should think of. One of the most basic is investing in joint names, wherever possible. With the ‘either or survivor’ option, this allows you the flexibility of operating the accounts.
In case joint holdings are not possible (as in PPF, for example), you should definitely nominate each other (or someone near and dear to both like your children). Typically, the youngest person in the consideration set is made the nominee. In case, after marriage, you decide to change your surname (in some cases, even the name is changed), ensure that all your documentation is up to date.
The author is with PARK Financial Advisors
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