Financial Planning for Newlyweds : Part 2

In the first part, I tried to point out how a newlywed should build trust around fiances with each other. A skyscraper can be built only when it has a strong foundation and likewise when you want to progress as a family and build your riches together you should share a strong bond of togetherness. Your finances will grow together as you walk on the path of marriage holding hands together. Your financial life will be sorted out only when you developed a sense of oneness in the relationship. Working towards building family fortune together it the most amazing thing which you both can do together.

Following pointers are important points of Financial Planning which you as a couple should own and work towards it so that in the long term you create wealth and achieve financial freedom.

Emergency Fund-As of now, you both may be living with your parents or as a bachelor from where you are working. You might never think of emergency fund requirements. However, immediately after your marriage, you noticed that certain unplanned expenses popped up in your financial life. It may be like buying furniture for your new house, some electronic items or your weekend gateway travel. Both of you need to create an emergency fund immediately. You are not alone now and hence your responsibilities or unplanned expenses may shoot up at any time. Hence, it is always better to create your emergency fund as a priority. Make sure to achieve this target of achieving as soon as possible. The quantum of an emergency fund should be at least 6 months of your expenses (Household monthly expenses, Life Insurance, Health Insurance, and General Insurance Premiums and any EMIs as well as expenses required for household consumer durables).

This fund should be liquid enough to access easily when needed. Liquidity is the highest criterion.

Whatever money we are keeping aside should always be safe to assure Capital Protection.

This money can earn a reasonable return.

Importantly If the fund is used then efforts must be made to replenish it as soon as possible. The adequacy of the emergency fund should also be periodically reviewed. It should be done annually or whenever there is a large addition such as an EMI, to the monthly expenses.

Most preferred Financial Products used for Emergency Fund. are Bank saving account, Bank Fixed Deposit, Recurring deposits, Liquid Funds, Overnight funds, hard cash and (only in emergency) Credit card limit

2. Liability Management-Even though you planned for marriage expenses, you might end up spending more than the budget. Hence, on both of you, there may be a certain liability in the name of Personal Loan, Loan from friends or relatives or from parents itself. It is of utmost important to concentrate on this aspect of liability also. Hence, try to repay it as a priority. Here you both should prioritize loan repayment schedule. The most important loan to be closed asap is a credit card loan because it is a revolving credit. The second one is your personal loans try to close this loan in the respective proportion of the amount of loan simultaneously. Then comes the loan you have taken from your friends and relatives. Give importance to repay this loan too so that your relationship between friends and relatives will not get distributed and remain as healthy as before. Then comes your parents.

3. Insurance-As of now, you both are independent and maybe no financial dependents. Perhaps you are not adequately insured. Now that you are married, life changed completely. Soon you will be starting your family. This is an ideal age of thinking of Insurance planning. It includes both Life and Health Insurance planning.

Life Insurance: Term insurance is important If both of you are working, and If anything were to happen to either earning member, the family will be dire straits. Life insurance that too, enough TERM insurance plan will mitigate this risk. It is better to buy a pure term life insurance of at least 15–20 times of your yearly income. Never mix Investment and Insurance. This is the thumb rule of Financial Planning. Never buy Endowment, whole life, and Money back policies or even ULIPs. Just plain vanilla Term plan is enough for the insurance need

Health Insurance: Health cost is increasing at an alarming rate worldwide. Medical inflation is highest in India. Medical emergencies come unannounced. To get the best medical facilities without a financial burden you will need health insurance. Many times, the company’s group health insurance sum assured is not enough as well as If you lose your job, your group health cover is ceased. You will not be a part of that. So apart from the employer’s health plan, extra health insurance can serve you as a cushion in the above-mentioned situations. One can buy a standalone health policy or family floater as a base plan added to the company’s health coverage. The additional super top-up plan can be purchased at a very reasonable rate.

Buy accidental insurance of at least 10 times your monthly earning. Personal Accident Cover policy is important because it provides 4 basic benefits for 1. The accidental death benefit, 2. Total permanent disability, 3. Total temporary disability and 4. Partial temporary disability. Where for accidental death and total permanent disability 100% SA is given. For partial temporary disability % of SA will be given as per the insurance company’s policy. For total temporary disability arising out of accident insurance company provides for loss of income which is also called weekly benefit till you go back to work or up to certain term as per company policy.

3. Total temporary disability and 4. Partial temporary disability. Where for accidental death and total permanent disability 100% SA is given. For partial temporary disability % of SA will be given as per the insurance company’s policy. For total temporary disability arising out of accident insurance company provides for loss of income which is also called weekly benefit till you go back to work or up to certain term as per company policy.

4. Your responsibility towards parents– Just, because you both are well settled, does not mean your responsibilities end towards your parents. Now it is your turn to be responsible for your parents. Hence, it is best to plan towards them too. The priority is always to buy health insurance for them (even though your parents are covered under your employer’s health insurance). You need to plan for both of your parents. Buying health insurance for them is not enough. Because of many a time, the claim amount will not be settled to 100% of the billed amount and because of their advanced age, they may not get adequate health cover. Hence, the creation of an emergency health fund towards your parents is the utmost important priority for you. Ideally, it should be around Rs.5 lakhs to Rs.10 lakhs. Plan this for both of your parents.

5. Kids Planning-Even though you’re planning to start a family may be down the line after 3–4 years. But you must keep in mind that the pregnancy-related expenses, kids nursery school admission nowadays are very high. Hence, as a priority, you must consider the childbirth expenses and child nursery school admission costs as one of the goals and start investing towards those. Otherwise, these costs may be a big burden when you both face it. You need to get a health insurance plan immediately if you want maternity coverage too in your health plan as such health insurance plans have a waiting period of 3 to 4 yrs for maternity expenses. You can start setting aside some money in liquid funds for pregnancy and childbirth expenses.

At the same time, as a long-term goal, you both must start for kid’s graduation or post-graduation goals also and start investing in different asset classes as Equity and debt through mutual funds.

6. Your Retirement– Whether you be in this profession or another profession. You have to face your retirement. Hence, why not start early and that too when you have fewer financial obligations towards your family? In today’s world when private jobs are not secured there is no question of pension from the employer and that’s made Retirement Planning more crucial. The provision for this goal should start from your first paycheque itself. If you start contributing early for this purpose you can build a sizable amount in your retirement kitty. Never ignore planning for this long-term goal also.

REMEMBER, STARTING EARLY IS EASIEST WAY OF CREATION OF WEALTH THAN OPENING THE EYES WHEN THE GOALS ARE IN FRONT OF YOU.

This way you both can have sound financial planning together.

Marriages are meant to be nurtured every day with LOVE, CARE and TRUST. Work towards it daily because when your foundation of marriage will be stronger, your financial life will also be stronger with your spouse…

Happy bonding and rich life together!!