Financial Planning for Newly Wed Couples
From Financial Literacy Wiki
Financial Planning for Newly Wed Couples
Are you getting married soon? If you are, it is wise to find out how your partner treat his/her finance. Below are some financial issues you might need to discuss before tying the knot.
Establishing Financial Goals
Discuss your goals for the future: whether you want to have children and when; the kind of lifestyle you hope to have; and retirement plan. It is vital that you discuss such issues because after tying the knot, you will move through each other lives as one entity, instead of two.
Savings and Spending Strategy
This should complement your lifestyle goals and retirement plan. It is important to discuss this and deal with any differences in your respective incomes. Think about which expenses you want to keep separate and which to share. This will help you draw up your household budget and who is paying which bill.
Knowing your combined Financial Worth
Calculate your combined wealth as a couple so you know your new household's financial worth. Review any combined debts like mortgage, car loans and insurance payments and calculate how long it may take to repay them.
It helps to have an understanding of each other's financial capacity, which includes the earning capacity and also the assets and liabilities that both may bring into the newly created entity.
From this, a family cash flow statement and balance sheet can be developed which will give both of you a better understanding of what you can and cannot afford and what each needs to sacrifice financially in order to achieve family financial goals.
Setting up a Fund for Emergencies
One of the first things a couple should do is to establish a fund for rainy days. This should amount to 6 to 12 months of mortgage payments and household running expenses, which can help maintain the family lifestyle while a more permanent solution is found, in case of illness or retrenchment.
Handling of Monthly Household Expenses
It is unlikely that two people have similar spending and saving habits, thus it is important that the couple must decide how to find a compromise to avoid friction in the marriage.
The saver may be the better party to handle budgeting in the household, or be given the job of managing the monthly household expenses.
Maintaining Separate Banking Accounts
A couple can consider setting up a joint account for household expenses and any shared expenses, and keep individual savings and investment accounts separate. This way, should anything happen to your other half, you will not be left in dire straits. Instead, you will still have access to your money or emergency funds to tide you over the 'difficult' period.
Deciding on Contribution to the Joint Account
Couples can go by contributing a certain percentage of each individual monthly income.
This will allow each individual to feel that he or she is contributing 'equally' to the joint account, especially if the couple have different earning abilities. Any arrangement is good as long as it is agreed upon by each other.
Handling Increases in Earning Power
As you progress along in life, earning power of each other will change. It is critical that both of you discuss how you should handle such changes without jeopardising your marriage or letting it become a point of contention in future argument.
Planning to Buy a House
You may want to do this jointly because it is a big-ticket item that requires a huge commitment from either partner.
For example, both of you may want to jointly set a goal of owning your home in two years' time. To achieve this goal, you may wish to ask yourself some of these questions: How much of your pay should you be saving towards the down payment for the house? Where will the savings be held and who will be tasked to grow the savings? How is the mortgage going to be financed - that is, via Central Provident Fund (CPF) savings and cash, and in what proportion?
Handling the Investment of the Joint Savings
The person who is more financially savvy should undertake this role. Or couples can come together to learn and invest together. This will be an opportunity to learn more about each other.
Do note that the person who is good in handling household expenses may not necessarily be good at managing investments. This is because he or she may be risk averse thus making in low risk low return investment.
Reviewing your existing insurance policies
Look at your policies and ask if they are still providing you with the adequate protection after marriage.
For example, you may have bought a house which requires financing. In this case, you should consider picking up a mortgage-reducing term assurance plan which protects the surviving spouse by paying up a portion or all of the remaining housing loan, in the event of a partner's untimely death.
Also, check if you are short of, or if there is overlapping insurance coverage between you and your partner. Add your spouse as your insurance beneficiary.
Updating your CPF Nomination
You need to re-nominate beneficiaries for your CPF funds as your previous CPF nomination will be revoked upon marriage.
If you do not submit a new nomination, your CPF savings will be distributed according to the Intestate Succession Act, which decides who receives your assets should you die.
If you do not have any children but one or both of your parents are alive, then your spouse gets half of your assets, while the remainder goes to your parent(s). If you have children, your spouse gets half of your assets, and your children will share the remainder equally.
