One of the most critical changes you encounter after getting married is the financial reality. Single income can convert to double, but so can the debts; buying assets may become easier, but insurance liability could increase; your spending or saving habits could be a disastrous mismatch, but your long-term goals may be the same. While it’s not easy to find a snug financial match, it’s not impossible to home in on feasible solutions either. You not only need to harmonise the different financial ideologies and habits that you bring into a new relationship, but also streamline your individual finances in a way that you can work towards the combined goals. To help you find a firm foothold in the new financial paradigm, we present a primer that will help avert any faux pas and provide ready resolutions to fiscal irritants.
Reveal your cards
Talk. Discuss. Debate. Confer. Communicate. There aren’t enough synonyms in the thesaurus to emphasise the importance of talking about your finances. Preferably even before you get married. So be it your income or expenses, savings or debts, liabilities or assets, proclivities or aversions, habits or cravings, lay them all on the table. List out your outstanding debts like car loans or credit card bills and assets like jewellery, real estate or stock investments.
These inputs will act as building blocks for your new financial equation and make it easier to formulate goals and stick to a plan to achieve these. Mumbai-based Raj and Rahmath Tapal, both 32, know about the importance of talking. They've been married for only a month, but have known each other for several years. “We talked about our savings and spending and knew that we wanted a house. So we started saving 50,000 each every month to buy it,” says Raj. Talking not only helps meet your goals, but also irons out misunderstandings and differences. Besides, it keeps both the partners in the loop and in the absence of one, the other is not left in the lurch.
Frame a budget, fix the goals
If, after the revelations and discussions, you have not already set your goals, it would be the next logical step. Frame your shortand long-term goals in accordance with your priorities and earning capacities. So whether you plan to buy furniture, car or a house, establish a time frame. You should also discuss the financial implications of having a child, savings required for his/her education and marriage, vacations and, of course, your retirement. It's never too early to start planning and saving for such goals because the compounding effect of investments works in your favour.
To ensure the fulfilment of these objectives, it is critical that you make a budget. Start with bigger expenses like loan EMIs, house rent or insurance premiums and go on to smaller ones such as utility, grocery or credit card bills. Then move to discretionary expenses like those on clothes, cosmetics or outings. “A budget, which includes tracking your spending, is the only way to really know where your money is going,” says Kshitij Gupta, a Mumbai-based financial planner. So you could resort to remedial measures like cutting down on dinners or vacations.
Work out the plan dynamics
This is perhaps the most critical aspect of financial management for newly-weds. The plan is ready. The execution should be easy, right? Wrong. This is a pitfall that brings on most of marital confrontations. Should you merge your finances? Should the debts of both spouses be settled jointly? Who will ensure the budget is on track? “There is no blueprint for the way a couple should handle finances,” says Gupta. “Merging finances is one of the first big decision married couples make-and often the most difficult,” he adds.
A simple solution is to have both. While you can retain your individual accounts for paying your credit card bills and other personal expenses, you can have a joint account for household payments, including utility or grocery bills. The latter allows flexibility to operate it in each other's absence. “You could also decide contributions towards different household baskets, depending on the income ratio, and make allocations from separate accounts. This will give room to both for indulging in discrenationary spending and maintaining independence,” says Surya Bhatia, a Delhibased financial Planner.
Another fragile decision to be made is how to build assets and settle debts. If you build assets jointly, keep in mind that there can be legal problems in case of a split. As for debts, you could do it by pooling in resources and trying to pay off the one with the highest interest, or continue to do it as you were before marriage. What's important is to take a joint decision so that both are comfortable about managing finances.
Buy more insurance
Before marriage and without dependants, you can make do with small insurance. After being hitched and if you are the sole earning member, you will need to upgrade it; more so when you have kids. “Now you have to cover the risk of dying young and leaving a dependant(s). So a term life insurance is critical,” says Ajay Bagga, GM of wealth management at Duestche Bank. Your cover should be enough to pay your outstanding loans and there should be enough left for the spouse to live off it. Ideally, you should have at least 10 times your annual income as life cover. Another important cover to consider is health and disability insurance. Chances are you are insured by your employer, but it's advisable to buy a separate policy. “On an average, a combined cover of 5 lakh for a couple should be adequate, especially in a big city,” says Jayant Pai, vice-president of Parag Parikh Financial Advisory Services.
Know about taxation benefits
You can't be blamed for a mild aversion to the taxman, but after tying the knot, you'll find a few reasons to toast him. As a married couple, you will be eligible for a higher home loan and both can claim tax deduction on repayment. A joint home loan offers a benefit of 1 lakh each under Section 80C of the Income Tax Act (for repaying the principal) and an additional 1.5 lakh each on the interest repayment under Section 26. This takes your total deduction as a couple up to 5 lakh a year. If you are planning to get married soon, remember that a wedding is one of the few occasions when cash gifts are not taxed, but the recipient will have to prove it was a gift. So be more amenable to cheque or demand draft gifts.
Take care of documentation
To snuff out irritants if you go in for a name change after marriage, ensure you indulge in the necessary paperwork. This will involve name and address changes in PAN card, passport, KYC, bank account, etc. “It’s the man’s duty to appoint her as a nominee in his investments and policies. He should include her as a secondary holder for ease of administration in his absence,” says Kartik Jhaveri, a Mumbaibased financial planner.
Till divorce do us part
It might be criminal to think of a split when you are just married, but it’s a possibility one should not negate. You could face problems in claiming your contribution towards joint assets like a house. If the property or asset is mortgaged with the bank, both parties can continue to be co-borrowers and co-applicants and service the EMIs. To bypass legal and tax hassles, it is necessary to open accounts and investments in your own name and make the spouse a nominee or secondary holder. But if you make joint investments collect all receipts for any payment towards these in your name.
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