Marriage in India is considered a holy union where two souls meet, merge and are supposed to live together for eternity. But, as a certain saying goes, marriages are made in heaven, but after the ceremony you have to come back down to earth. So, unlike fairy tales where couples always live happy ever after, living together in real life has its own ups and downs. And money certainly plays a major part in influencing these ups and downs. Which is why a financially well-prepared couple has a better chance of staying together through this roller coaster ride called life. Unfortunately, not everyone knows how to financially prepare themselves to face tomorrow. If you’re one of those married couples still scrambling around in the dark, here’s a guide to help you get organised.
Before tying the knot
When it comes to marriage, people are often blinded by good looks, charming ways, and caring attitudes. Unfortunately, many fail to evaluate their future spouse on the financial front. Even those who scrutinise a lot more, only tend to look at education, income and profession.
However, there is one question everyone should answer before choosing a partner. You and your partner may be astrologically, emotionally, and even socially compatible but are you financially compatible? Well, you should be, to some extent at least.
It’s possible that your spouse may be quite well to do, but his or her bank balance at the end of the month might be zero. You on the other hand probably like to maintain meticulous accounts of all your expenses. Or maybe your other half hates shopping or even might come across as the cousin of notorious miser Hetty Green, while you are a shopaholic.
Additional Reading: Check your financial compatibility, now!
So, there are chances that you both might be financially incompatible. It is important to find out your partner’s money personality. Money personalities are reflections of the relationships one has had with money during their formative years. This includes what we have been taught, what we have seen our parents do, as well as the behavioural patterns of our relatives. If you feel comfortable with your spouse’s money personality, the two of you will find it easier to blend your goals, aspirations, and dreams into a single financial plan.
While some money traits may seem ‘cute’ before marriage, they might actually wreak havoc on your married life. Take the case of Manasi Murali, 28, a services professional in Indore and her husband. Theirs was a love marriage and they were seemingly the perfect couple, doing everything together. While they were dating, Manasi’s husband had the habit of buying her expensive gifts using Credit Cards. He also spent on gadgets and toiletries for himself. She was mighty impressed and this was one of the reasons she loved him, but when he did the same thing after marriage, she wasn’t too pleased. This is because he was paying huge interest on his outstanding Credit Card dues. Because of this, she is now working freelance on weekends to close out their debt so that they can plan their family without worrying about any liability.
If you don’t want to end up like Manasi, check your financial compatibility before marriage. There is no need for you to have absolute synchronicity in your views. But, you should make sure that at least your core beliefs regarding money are not diametrically opposite. Another thing you need to do – evaluate whether your money ‘differences’ are acceptable, or at least, tolerable.
Compatibility is one thing, but you also need to know whether your prospective partner has any financial liabilities. In fact, it is your right to know not only the income of your partner but also his or her savings and liabilities. You must also find out whether your partner has a commitment to financially support any dependents. This will help you determine your financial situation better. A high income eaten up by big loans and dependents could mean little savings for your future. Once you come to know that your spouse has certain liabilities, you need to ensure that his or her income is sufficient to comfortably pay off these liabilities eventually. It is important that you be comfortable with your partner’s financial commitments before tying the knot.
Once you have chosen your prince/princess charming, it’s time for the big event!!
In earlier times, it was always the girl’s parents who funded the wedding as well as the honeymoon expenses. But today, youngsters prefer to take care of their own marriage expenses. Using Credit Cards or taking a loan to fund the wedding expenses is ok as long as you manage things wisely and don’t fall into a debt trap. You wouldn’t want something like this to sour the relationship.
You should also consider saving up to meet the expenses of the wedding. A wedding should always be a well-planned event, especially if it is to be done on a large scale. The best way to spend on “planned” expenses is to have a corpus ready by pre-planning Investments and restricting unwarranted expenses. You need to plan for your wedding expenses and invest for the same at least 2-3 years before the actual event.
Take the case of Preetha Sharma, 38, a dietician in Bangalore. Even though her parents funded the wedding, the honeymoon expenses had to be borne by the couple. For this Preetha’s husband saved his salary while Preetha saved her stipend money (she was doing her Ph.D then) to fund their honeymoon.
In case the amount you saved isn’t sufficient, you could consider loans against assets. Borrowing against assets such as Fixed Deposits, Insurance Policies, Mutual Funds, shares, or your house, could be considered. Think about takes taking an overdraft against Bank Fixed Deposits. These are currently available at an interest rate of around 8%-10% per annum. Whatever your means of funding, make sure you and your partner agree on the same since it will become a joint liability after the wedding.
But marriage is not only about spending, it also involves receiving. Gifts in the form of cash or cheques could help pay off some of your liabilities. However, you must understand the tax aspects before you decide to use the money received. Understand that any sum of money in the form of cash or a cheque received as a gift on the occasion of marriage is fully exempt from tax in your hands. Now, what does ‘occasion of marriage’ mean? This means either the day of the marriage itself or a day or two before or after. However, this tax exemption is applicable only for gifts from relatives. Relatives will include your spouse, brother/sister of you or your spouse, brother/sister of either of your parents or any of your lineal ascendants or descendants. What happens when you receive gifts from a non-relative? Such gifts exceeding Rs. 50,000 in a year will be taxable if received after marriage. So, ensure that you receive all your gifts on or before your marriage.
After tying the knot
‘Streedhan’ is something every bride carries with her to her ‘in-laws’ house. Even though the age old tradition is to give it to the husband, it rightfully belongs to the bride. Always keep a list of the Streedhan with you. Here’s some advice if you keep it in a bank locker. You must ensure that the locker is in the joint name of you and your husband. Make sure proper nominations are in place. If you have two lockers we suggest that you surrender the smaller locker and go with the bigger one (if the need is such). This will reduce the hassle of holding on to multiple keys. It will also bring down the cost of lockers. But remember, in case of any unfortunate event, the Streedhan should go to the right person. So, make a will to ensure that it reaches whoever it is intended to. You must make nominations not only for lockers but for all the investments made for the family. This includes bank accounts, Mutual Funds, insurance, shares, Provident Funds and any other investments.
Opening joint accounts is not enough. It is important that you make joint decisions when it comes to investments too. Most of your goals are likely to be common, so it makes sense to have a single financial plan. But if you are a woman, take the ‘breaks’ into account. There are several career breaks that women generally take, such as maternity leave or taking care of the elderly in the family. Factor these into your financial plan. When making a financial plan, it is important to balance different goals. You must organise your goals based on priority rather than preference instead of just listing them down. And remember, you may not have time to invest in another goal after one is done with. You need to invest for all your goals simultaneously. And remember, never over-leverage your income, especially when both of you are earning. Consider the risks to your job and factor them in, whenever necessary.
You also need to review all your investments along with your spouse. With a bigger family comes bigger responsibility and the first thing on the list should be insurance. Your life cover should be at least 10 times your annual income. This should be for both you and your spouse. A life cover for your spouse will be even more critical if your spouse is not working. It is better that you take your total family income into account while determining your insurance needs. Life insurance shouldn’t be your sole insurance coverage. With escalating health costs, health covers could save you a whole lot of money.
Take the case of Sharan Sridhar, 44, who works in a stock broking firm in Delhi. He and his wife had taken out health policies for all members in the family. So, when their 20-year-old daughter was hospitalised due to abdominal problems, the policy they took out a couple of years prior helped meet the medical expenses. The policy taken for his in-laws also proved useful. They used it when his father-in-law’s eyes had to be operated on. Note that individual policies might be a bit expensive. Consider a family floater in this case. You can even opt for a health rider in your life insurance policy. A critical illness policy for your spouse is essential, especially if he/she is not working. Insurance premiums can help you save on taxes as well. Make use of them by taking out policies for your spouse and parents.
If you are a double income family, you could save taxes efficiently. Ideally, between the two of you, the one with the higher income could invest in tax-saving tools such as Mutual Funds, while the other could invest in instruments with higher returns and lower taxation. If you decide to have separate tax files for you and your spouse, you both could individually be entitled to the basic exemption limits, progressive tax rates and various deductions. It is always better this way. Buying a house will also help you both save on taxes. Apart from the usual Home Loan interest deduction, if both of you own a house each, you can consider them as self-occupied with no annual value. There will be no wealth tax implications if each of the spouses has a house of their own. In case you are a home-maker, don’t fret. You could also help your spouse save taxes. If your spouse gifts you any assets or income, it will be taxed in the hands of your spouse. However, if your spouse loans you money, there are no tax implications.
Apart from insurance and tax planning, it is important to plan for your retirement as well. You must make a detailed estimation of your expenses and income. You need to project your future expenses and account for inflation before and after retirement. This is the first step to your retirement planning. Take into account the age of you and your spouse as well as when you plan to retire. Retirement planning becomes even more critical if you are a housewife because you are dependent on your spouse’s income and savings.
You must always review investments and expenses along with your spouse. As is obvious, if you and your spouse are in agreement, there won’t be any blame games in case the decision ends up being wrong. In case you both have different ‘money’ personalities when it comes to spending, you could follow this rule. Keep the expenses that your spouse doesn’t like, low. For example, if you like shopping and your husband doesn’t, ensure that you stick to inexpensive purchases. You can restrict your purchases to small ticket expenses. And when it comes to big-ticket spends, discuss them with your spouse before making them. After all, keeping your family’s best interests in mind is more important in the long run and will ensure a ‘happily ever after’ for both you and your spouse.