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Achieving Your Goals

Marriages are made in heaven, but when it comes to managing money, the challenges of this world have to be dealt with. So, few years into the marriage, it becomes important for the couple to discuss the family’s financial future and have in place a robust plan for achieving their financial goals.

FIRST STEPS

The first step that the couple should take is run a financial health check, which will include creating an emergency fund of at least six months’ household expenses. Ideally, keep about two months’ reserve in a savings bank (SB) account and the balance in a liquid or a short-term debt fund. Before you think of saving, it’s paramount to secure health insurance cover for yourself and your spouse. Family floater health plans suit those with small families as they turn out to be cheaper than individual health plans. Opt for health plans that come with few or no restrictions on sublimits on hospital expenses and offer lifetime renewability. As a next step, the primary breadwinner of the family should buy a pure term insurance plan, which works as an income replacement tool should the unfortunate happen to him. The coverage should be at least seven times his annual income. Review insurance needs as the family grows.

CHASING GOALS

Start with identifying your financial goals. Demarcate them into mediumterm, such as buying a house or car, and long-term, such as kids’ higher education and marriage expenses. Estimate the total monetary requirement for each goal after adjusting them for inflation. Work backwards to calculate how much you need to save each month to arrive at the required amount. To be on safer side, keep assumptions of growth rate and inflation conservative. Eschew the temptation to withdraw an investment due to bad market conditions and short-term needs.

DEBT CONTROL

Avoid unnecessary and impulsive spending on credit cards and rolling over outstanding dues. Personal loans should be your last resort and their role should be limited to bridging gaps while arranging funds. Taking a home loan is, however, constructive as it helps in building assets over the long term. The repayment of EMIs by both earning members brings tax deductions for the couple, especially when the house in jointly owned.

SHARING

A tricky question for the couple is how to approach their shared financial goals and responsibilities. While it is distinctly advantageous for many couples to continue to hold on to their respective financial assets separately, there are many situations where sharing of funds is convenient and practical. There is no fixed approach in meeting expenses and saving for goals when both members are earning. Under one approach, one person’s income may be entirely used to meet household expenses with the surplus going towards incidental expenses. The other partner’s income may be parked in investments such as fixed deposits, bonds and mutual funds to meet specific goals. Tax-saving investments should, however, be done from one’s own income. Under another approach, a joint account may be opened and equal contributions be made into it. Expenses towards utilities, groceries, rent, home repair and furnishings can be met through it. Goal sharing may then have to be undertaken by each partner separately. Saving for childrens’ needs may rest on one’s partner’s shoulders while retirement needs may be looked at by the other partner.

The life expectancy of the female member needs to be accounted for while saving for retirement. Another way could be to pool both incomes into a common joint account and making all expenses flow from it. The actual path would largely depend on individual personalities and their long-term shared dreams. Depending on income levels, saving for a vacation may happen by either one or both in varying proportions. For single income households, the situation could be challenging. Maintaining a household budget helps in keeping a close watch on not only recurring household expenses, but also on an individual’s spending habits. Cutting or trimming some expenses heads may be identified. The financial planning needs must be reviewed regularly considering the changing circumstances of the family and defi-nitely at key milestones such as birth of each child, or the start of children’s formal education.

Next To Come: Tune up for Retirement