Personal Finance: Wedding planning 101
What’s the one thing that two people who are about to get hitched should talk about but never do? Financial planning. Here’s how to have that conversation.
Loans and assets
It’s not enough to know each other’s incomes before getting hitched. You must also be aware of each others’ loans and liabilities, whether personal, home or education and those that are in process of being repaid.
Credit card debt and any consequent penalty would also take a toll on your earnings; considering banks these share details of borrowers rather actively, it makes sense to discuss current loans and their repayment status.
Short-term and long-term goals
A foreign trip for honeymoon involves substantial expenditure, so you’ll need some short-term financial planning. It would also help to plan such a huge spending together. Financial goals depend on one’s risk aptitude, and that differs from person to person. Couples must sit together and discuss possible investment options, contributions that each would make to their shared goals and the kind of instruments they would want to invest in.
Raj Khosla, founder and managing director, MyMoneyMantra, financial services marketplace said, “Both partners should be transparent about their present incomes and their outlook towards savings, expenses and also risk appetite. The portfolio should comprise a mix of fixed income instruments, equity and debt funds, preferably mutual fund SIPs involving blue chips, multi-cap and hybrid schemes for different life stages.”
“Since life is an evolving panorama with unplanned outcomes, an annual review and rebalance of portfolio is essential. When nearing your goals, remember to cut down on risky propositions,” he added.
Couples often accuse each other of spendthrift behaviour. One way to tackle this is to budget your combined take-home money in such a way that there is enough left to pay off common expenses including grocery bills, utility payments, rent, insurance premiums and loan repayments in the beginning and added disbursal on child support later.
Depending on the disposable income, couples can choose to retain their individual savings accounts or opt for a joint savings account in a bank.
Adhil Shetty, CEO, BankBazaar.com, an online market place for financial products, said, “Marriage involves not just building a life between you and your spouse, but also about shouldering responsibilities for both your families. Unless you are honest and open about financial matters, you will find it difficult to meet your individual and couple goals... Discuss openly where you stand in terms of assets, liabilities, income, loans, etc. and where you want to go from there. Together, you could chip away at any liabilities at hand, fulfil your aspirations, and handle your responsibilities with ease.”
Insurance is a must
The importance of insurance is known to many, though very few secure themselves through it. Loans incur liabilities. The sudden death of one partner can leave the other with a host of responsibilities and liabilities.
A good way to tackle this is for couples to buy life insurance policies equivalent to the loans that they have borrowed, so as to ensure timely and complete loan repayment with the insurance amount.
Pankaj Verma, Head-Underwriting, SBI General Insurance, a joint venture general insurance company, said, “A comprehensive health insurance plan is now more essential than ever before. It covers the risk of saving you and your family from sudden financial burdens due to any unforeseen medical emergency by providing maximum coverage flexibility and convenience in the long term. Such plans provide extensive coverage, including hospitalisation, OPD consultations, daycare treatment, and so on. Apart from these core benefits, health Insurance comes with a key benefit of helping save tax under section 80D of the Income Tax law.”
It seems awkward to discuss retirement even before the wedding. But, as we’ve said often enough, planning isn’t fixed in stone — start and revisit, but start you must.
“A prudent investment strategy includes a systematic and diversified investment in long-term saving instruments, which also provides tax benefits,” said Akhil Chandna, associate partner, Grant Thornton Bharat, an integrated Assurance, Tax and Advisory firm.
“Some of the good long-term investment options include investment in infrastructure bonds, National Pension Scheme, equity-linked tax saving instruments and tax-saving FDs. Buying Unit Linked Insurance Plan is another good long-term investment option wherein flexibility has been provided to switch between equity and debt,” he added.
Just remember to plan your retirement ages in alignment with the maturation of these saving instruments.
Personal Finance is a weekly feature that aims to provide our readers pertinent and helpful financial information.