Financial planning for couples can be tricky

“Although money battles are frequent in marriages,
they peak in couples’ 50s–60s.”

This is not some general statement intended to catch your attention. These are the research findings stated by the American Institute of Certified Public Accountants. In the late 40s–50s, couples realize that retirement is not so distant a reality to handle casually. However, when they realize the significance of financial planning, it is often too late. This is mainly due to the following reasons:

• • The millennial lifestyle centers around materialism, including branded clothing, extravagant cars, and international vacations. Ultimately, due to change, people spend more than what they earn/save, which becomes challenging after marriage.

• • Due to different habits, hobbies, and goals, couples are often uncomfortable while discussing financial affairs or avoid transparent discussions. This can eventually cause deficient financial outcomes and marital disputes.

So, if you’re married and over 40 years old, it’s high time for financial planning. Sit down with your spouse and discuss your retirement plans, desired lifestyle, future goals, and current financial aspects. Even if you belong to a one-income household, everyone’s contribution toward financial planning can be ensured. Because financial planning empowers and prepares marriages for emergencies. It also helps comprehend the alignment of investment outflow with income inflow and required finance efficiency for a foreseeable future.

Here are some tips for effective financial management for working couples.

Prioritizing expenses: This is the first step for regulating the budget, cutting losses, enhancing gains, and avoiding economic crisis. Saving a considerable share of both incomes is crucial for long-term financial goals.

Initially, implement the following steps for mitigating unnecessary expenses: 1) calculate your existing worth, 2) differentiate between wants and needs, 3) list future goals demanding monetary investments, and 4) calculate the exact money and time required for achieving every goal.

Additionally, apply the following universal 50/30/20 budgeting approach to determine and allocate money for suitable avenues:

• • 50% for needs: This involves monthly rent, bills, groceries, housing, transportation, mortgages, utility payments, and such necessary expenses that cannot be denied.
  • 30% for wants: This involves dining out, traveling, vacations, shopping, or anything associated with one’s lifestyle and spending quality times with family/friends.
  • 20% for savings and debt repayment: Invest in stable plans offering regular returns or maturity redemption, including mutual funds, fixed deposits, stocks and shares, and gold/silver investments.

Debt management: Clear off all debts soon. If you are paying 16–30% interest on high-cost debt while earning 12–15% return on your investments, you are clearly lacking in the financial progress. First, before applying for loans, consider prudent limits, such that the total of EMIs should be <30% of the gross income to avoid cash-flow issues. Second, apply for loans only when both incomes are reasonably strong with appropriate job security.

Bank accounts: Openly discussing bank accounts greatly tackles financial emergencies. Couples should decide mutually whether to opt for a joint or separate account.

Joint account: In this case, communicate clearly to your partner about your long-term and monthly monetary expectations. Decide a monthly spending limit and strictly abide by it.

Pros:

• • Easy budget management
  • Convenient for daily mutual expenses
  • No need for monthly resource division 
  • Limited expenditure
  • Prevention of undesirable financial changes associated with a growing family
  • Beneficial while achieving financial targets and couple goals
  • Easy access to finances in case of death/emergency

Cons:

• • Dividing finances are tricky in case of divorce or legal separation
  • Both spouses can withdraw funds (unexpected transactions) and close the account without each other’s approval or knowledge
  • Can cause marital conflicts due to income inequality, sense of lack of personal liberty, or lack of personal financial independence
  • Hard to keep surprise gifts a secret

Separate accounts: In this case, keeping one joint account is logical for recurring household expenses.

Pros:

• • More freedom to personal money management without autonomy
  • More appealing when you are in major debt. It covers the spouse if debt collectors arrive or in times of accident concerning the sole right to survivorship
  • Fewer arguments over spouse’s spending habits

Cons:

• • Because of the obliviousness of spouse’s spending limits, couples need to interact more and honestly about financial planning
  • Recurring expenses to be sorted out monthly
  • Finance management is challenging after childbirth, while planning a child’s future, or when one spouse quits a job or changes career direction
  • If both are saving individually for retirement, investments are not fully optimized

Contingency fund: As the word suggests “uncertainty,” these are beneficial in an unprecedented crisis, including loss of a job or accidental disability. Put in ~5–10% of both your salaries into a joint contingency fund. This prevents the exploitation of investment aggregation in emergencies.

Dreams and couple goals: Financial planning implies building a life together with your significant other. Hence, at this age, absolutely prioritize your investments for fulfilling your couple goals.

When achieving individual goals, one spouse is unaware of another’s savings. If you plan finances mutually, the money is more consolidated and channelized towards common goals. Couple goals and shared liabilities ensure equitable wealth distribution among both partners, wherein, investments and future planning do not burden only one spouse.

Investment planning: Investing in mutual funds through a Systematic Investment Plan (SIP) is invariably your best bet. Divert your future SIPs to several mutual funds for the next few years unless immediate needs are met. With increasing income, the SIP amount can be increased.

Term goals and appropriate funds:

Long-term (e.g., planning for retirement or child’s education): Equity funds are the right choice. Despite the high risk, these funds invest in the top 100 financially stable companies with large market capitalization and reliable financial records.

Medium-term (e.g., buying a house or starting a family): Despite fewer returns, debt/hybrid funds pose a comparatively lower risk than that associated with equity funds. These funds invest in fixed income earning instruments.

Short-term (e.g., buying a car within a few years): Liquid/low-duration funds/bonds are ideal.

Insurance: While investing in life-long assets, couples often oversee the risks associated with their lives. Investments and insurance are equally important yet completely distinct entities, and one should not ignore the significance of insurance.

Insurance policies that help achieve life goals include endowment, child, and pension plans. Wealth-creating insurance includes unit-linked insurance plans. Certain plans cover real estate and household aspects. Moreover, life insurance and health cover are the utmost aspects to be considered in marriage.

• • Life insurance: The current pandemic has proved that life cannot be guaranteed. So, if anything happens to you, your spouse alone will have to cover all the life-long expenses. Nevertheless, you can protect your family beforehand with term-life insurance.

Benefits: 1) life-long protection regardless of uncertainties and 2) family’s financial security

• • Health cover: Irrespective of employers’ provision, buy health coverage for both partners and children. After 40 years of age, these covers should be supplemented with floater policies for managing increasing healthcare costs.

Benefits: 1) coverage against medical expenses and critical illnesses, 2) cashless claim benefits, 3) renewal options, 4) additional protection over your employer cover, and 5) tax benefits

Regular financial reviews: The world economy is constantly evolving, and so are your financial aspects. Thus, couples should review their finances regularly to understand what/how much they own, e.g., investments, and owe, e.g., loans.

Goal-oriented financial planning guarantees secure future and lifestyle freedom. Nevertheless, it is a comprehensive diligent exercise, demanding equal honest consistent teamwork, shared values, and proper execution.

Conclusively, keep aside emotions while discussing finances and make firm ambitious decisions together. If you’re unsure about when/how to plan finances, seek professional advice, honestly disclose your financial/retirement aspects to your spouse, and build a life together.