Five financial planning tips for young couples

Marriage is one of the biggest decisions of life and according to various studies across countries, a happy married life is crucial to lead a healthy and fulfilling life. While it is said that marriages are made in heaven, in today’s world judicious long-term financial planning plays a crucial role in keeping married life happy and harmonious. 

The best couples too will find it difficult to live harmoniously if the household finances are not in order and they don’t agree on important financial decisions.

That’s why it’s important for newly-married and young couples to plan their financial finances together. This applies to couples where only one partner is earning as well as those where both spouses are working. Financial prudence will ensure that money is the last thing that leads to friction among them. 

Here are five tips to help young couples kick-start their financial planning journey:

1. Set up a budget: Creating a monthly budget or an expense plan is the beginning and the most essential part of financial planning. This is especially crucial for couples who have just moved in together and are not sure about the nature and quantum of their joint monthly expenses. 

A clearly defined budget with maximum allowable expenses on key items such as rent, living expenses, eating out, holidays and shopping will help both of you to compare and contrast the monthly income with the likely expense.

Budgeting can also help both of you to plan and save for mid and longer-term big-ticket expenses such as an exotic holiday, buying a car or jewellery or investing in a house a few years down the line. 

2. Agree on some common financial goals: Money and spending become a bone of contention between couples and a key source of marital discord when both partners have different attitudes towards expenditure. While it’s never possible for the closest of couples to agree on every financial decision, both partners can agree on mutual financial goals that they can work together to achieve. 

These common goals could be things like moving into their own house within a certain time period, buying a family car, creating a savings and investment pool for children's education and marriage, creating an emergency fund or saving for a foreign holiday. 

Also Read: 7 golden rules to save and invest for your child’s education

That way, you won’t run the risk of depleting your savings or overspending thus being unable to meet your long-term financial goals. This will also create financial headroom for both partners to pursue their individual goals and pursuits such as travelling, photography, gadgets and other expensive hobbies.

 3. Savings and investments: Planning for savings and investments is as important as budgeting for essential expenses every month. After accounting for expenses, every couple must save a minimum amount every month for their long-term financial goals. 

Some financial planners suggest setting aside this amount before accounting for mandatory spending. However, this can be decided mutually by the couple based on their financial situation. 

For example, savings are more important in case there is no inheritance. Savings should be deployed in various financial instruments to create one or more portfolios according to the risk appetite of both partners. The portfolio construction should consider short-term money requirements and create adequate liquidity.

It could be the case that the husband wants to invest in risky but high-return assets such as equity and mutual funds while the wife prefers traditional assets such as bank fixed deposits, life insurance and gold jewellery. 

Both partners must sit together and decide on a common set of portfolios that meet their short-term as well as long-term goals. 

Both need to ensure that they have access to the information and review the portfolios regularly. In the case of single portfolios, ensure that nominations are in place.

Also Read: 10 equity mutual funds that have defied market correction in the last 6 months

4. Health insurance and emergency fund: The covid-19 pandemic was a rude reminder that having an adequate health insurance policy is of utmost importance. In India, healthcare costs are the primary reason for families slipping below the poverty line. 

Cashless health insurance is a good way of dealing with any unforeseen health emergencies without causing fatal damage to savings. 

An emergency fund of at least six months is essential to mitigate unexpected shocks such as job loss. Having six months’ worth of monthly expenses tucked safely in a bank account insulates you against temporary financial crises.

Also Read: Why women need a separate health insurance cover & how to go about it

5. Decide on a suitable life insurance plan: Agreeing upon a life insurance plan is crucial to ensure the long-term financial health of your partner and your family. A right life insurance plan will ensure that the untimely demise of one of the partners doesn’t cause financial distress to the other partner and dependents in the family such as children and parents. 

Term life insurance is one of the best and the most cost-effective ways to secure the financial future of your family. 

In your absence, this would also help your children achieve their long-term goals such as higher education or paying for a home loan. 

Decisions related to a term plan include whether you and your partner prefer separate term covers or a joint cover. A joint cover is also known as spouse term insurance—both partners are covered under one policy, making it easier to keep tabs. 

You can consider various factors such as costs for both plans to arrive at a decision. Compared to separate term plans, a joint cover is less pricey. You and your partner can also choose additional riders (a kind of add-on cover) for permanent disability, accidental death, critical illnesses, etc., with mutual agreement.

Happy financial planning!

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

Also Read: Five financial planning tips for women

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