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How to Marry your Finances
Faye D'Souza and Riju Mehta list the mistakes newly-weds should
avoid to prevent
their marriage from slipping into a financial freefall.
One of the most critical changes you encounter after getting
married is the financialreality. Single income can convert to
double, but so can the debts; buying assets maybecome easier, but
insurance liability could increase; your spending or saving habits
couldbe a disastrous mismatch, but your long-term goals may be the
same. While its not easy tofind a snug financial match, its not
impossible to home in on feasible solutions either. Younot only
need to harmonise the different financial ideologies and habits
that you bring into anew relationship, but also streamline your
individual finances in a way that you can worktowards 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 fiscalirritants.
Reveal your cards
Talk. Discuss. Debate. Confer. Communicate. There arent enough
synonyms in thethesaurus to emphasise the importance of talking
about your finances. Preferably evenbefore you get married. So be
it your income or expenses, savings or debts, liabilities orassets,
proclivities or aversions, habits or cravings, lay them all on the
table. List out youroutstanding debts like car loans or credit card
bills and assets like jewellery, real estate orstock
investments.
These inputs will act as building blocks for your new financial
equation and make it easierto formulate goals and stick to a plan
to achieve these. Mumbai-based Raj and RahmathTapal, both 32, know
about the importance of talking. They've been married for only
amonth, 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 monthto buy it, says Raj. Talking not only helps
meet your goals, but also irons outmisunderstandings and
differences. Besides, it keeps both the partners in the loop and
inthe 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 bethe next logical step. Frame your short
and long-term goals in accordance with yourpriorities and earning
capacities. So whether you plan to buy furniture, car or
houses,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. Its never too early to start planning and saving for
such goals because thecompounding effect of investments works in
your favor.To ensure the fulfillment 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 smallerones such as utility, grocery or
credit card bills. Then move to discretionary expenses likethose on
clothes, cosmetics or outings. A budget, which includes tracking
your spending, isthe 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 ondinners or
vacations.
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Work out the plan dynamics
This is perhaps the most critical aspect of financial management
for newly-weds. The plan isready. The execution should be easy,
right? Wrong. This is a pitfall that brings on most ofmarital
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 waya couple should handle finances,
says Gupta. "Merging finances is one of the first bigdecision
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 payingyour credit card bills and other
personal expenses, you can have a joint account forhousehold
payments, including utility or grocery bills. The latter allows
flexibility to operateit in each other's absence. You could also
decide contributions towards different householdbaskets, depending
on the income ratio, and make allocations from separate accounts.
Thiswill give room to both for indulging in discrenationary
spending and maintainingindependence, says Surya Bhatia, a
Delhibased financial planner.
Another fragile decision to be made is how to build assets and
settle debts. If you buildassets 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 highestinterest, or continue to do it as you were
before marriage. Whats important is to take ajoint decision so that
both are comfortable about managing finances.
Buy more insurance
Before marriage and without dependants, you can make do with
small insurance. Afterbeing hitched and if you are the sole earning
member, you will need to upgrade it; more sowhen you have kids. Now
you have to cover the risk of dying young and leaving
adependant(s). So a term life insurance is critical, says Ajay
Bagga, GM of wealthmanagement at Duestche Bank. Your cover should
be enough to pay your outstanding loansand 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 ishealth and disability insurance.
Chances are you are insured by your employer, but it'sadvisable to
buy a separate policy. On an average, a combined cover of 5 lakh
for a coupleshould be adequate, especially in a big city, says
Jayant Pai, vice-president of Parag ParikhFinancial 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 afew reasons to toast him. As a married
couple, you will be eligible for a higher home loanand both can
claim tax deduction on repayment. A joint home loan offers a
benefit of 1 lakheach under Section 80C of the Income Tax Act (for
repaying the principal) and an additional1.5 lakh each on the
interest repayment under Section 26. This takes your total
deductionas a couple up to 5 lakh a year. If you are planning to
get married soon, remember that awedding is one of the few
occasions when cash gifts are not taxed, but the recipient willhave
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 inthe necessary paperwork. This will
involve name and address changes in PAN card,
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passport, KYC, bank account, etc. Its the mans duty to appoint
her as a nominee in hisinvestments and policies. He should include
her as a secondary holder for ease ofadministration 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 its a possibility oneshould not negate. You could face
problems in claiming your contribution towards jointassets like a
house. If the property or asset is mortgaged with the bank, both
parties cancontinue to be co-borrowers and co-applicants and
service the EMIs. To bypass legal andtax hassles, it is necessary
to open accounts and investments in your own name and makethe
spouse a nominee or secondary holder. But if you make joint
investments collect allreceipts for any payment towards these in
your name.Inputs from Priya Kapoor and Amit Shanbaug
RAJ & RAHMATH TAPAL
both 32 years, Mumbai
Married for: Nearly a month, but have known each other for
several yearsThe wrongs: Raj started the marriage with a debt-a
loan for the wedding.Both have only 2 lakh worth of health
insurance each, but plan to upgrade soon.The rights: They discuss
before taking a financial decision.They have their goals and budget
in place. They are close to buying a house as they startedsaving
even before the wedding
