A couple’s income should be rightly allocated to achieve financial goals successfully. Here are a few guidelines.
Your financial responsibilities increase significantly after you get married. However, if you have a working spouse, he/she can help you share the load. Financial cooperation and independence, both form an essential part of a couple’s life. Often working married couples stress their relationship due to financial misunderstandings. Identifying common financial goals can result in a harmonious relationship between the couple. It’ll also help in achieving the goal within the requisite timeline.
In this article, we discuss a few financial strategies that couple with joint income should consider.
Prioritise Common Financial Goal
It is important to prioritise your common goals and list them in order of importance. Once this done, you can set a timeline for achieving each one of them. Prioritising goal will also segregate the personal goals from the common goals. While prioritising goals, the focus should be on short, medium and long term financial commitments. It should include things like ensuring financial security, covering health and life risk, buying a home, buying a car, child education, marriage etc.
Financial Strategies For Achieving Common Goals
Once the financial goals are in place, the next step is to formulate a strategy to achieve each goal. Opening a joint bank account could help keep confusion away with regards to payments. Next, get an estimate of the total money that needs to be saved monthly. Now divide the load among yourselves based on your salaries.
While preparing the financial strategy for achieving the common objective, you must allocate appropriate fund as per the goal requirement. Misappropriate allocation of funds can keep you short of achieving the goal.
Let’s understand how to prepare a financial strategy for a couple with the help of an example.
Let’s assume that the total post-tax salary of a couple of 30-35 years with one child is Rs. 15 lakhs p.a. While preparing a strategy to use the joint income, the couple should focus on important objectives that include Insurance, Health Cover, Investment, debt repayment, maintaining a contingency fund and other financial requirements. Based on our assumption, let’s check out a financial strategy for each objective one by one.
Insurance
Adequate insurance cover is essential for a strong Life Insurance policy. Considering combined net income of the couple to be Rs 15 lakh p.a., the collective life cover should be at least 12 times of income i.e. Rs 1.8 crore or more. Personal accidental cover and partial as well as permanent disability cover should also be the part of the financial strategy for a comprehensive risk cover.
Health Policy
The couple should get Health Cover of at least Rs 5 lakh each to get a protection during medical emergencies. Hospitalisation cost is increasing every day, so the couple should also consider their lifestyle and family health history while deciding the cover size. It is important to take additional Critical Illness cover of around Rs 20 lakh for expensive health treatment. Apart from taking health and critical illness cover, the couple should always maintain an emergency fund for immediate financial relief during a time of need.
Investments
Considering the age of 30 years to 35 years of the couple, the investment size should be at least 25% to 30% of the net income. Investment should be strictly linked to the short, medium and long term financial objectives. Investors should also focus on effective Tax Management. The investment portfolio should be as per the risk and return expectation of the couple.
Debt Repayment
It is important to pay all debts on time. Irregularity in debt payment can spoil the CIBIL score. Ideally, debt should not be higher than repayment capacity and it should not be as high that it damages the financial objectives. A couple’s debt repayment obligation should not exceed 40% of the net income otherwise it may put stress on the regular spending capacity. Considering the income of Rs 15 lakh, the couple should not keep repayment obligation of more than Rs 6 lakh per annum.
Contingency Fund
You can never predict what type of financial emergency may unfold in the future. So, it is important for a couple to maintain a contingency fund. If the regular income is choked, this should be adequate enough to clear all important financial obligation for least 6 to 8 months.
Miscellaneous Expenses
The couple should take care of common financial obligations like fund requirement for a vacation, regular home expenses, child education, home repair and maintenance, other expenses for a common purpose.
Financial planning is not a one-time affair. You have to practice it regularly to get the best result. You must consult the financial advisor before you finalise a strategy to avoid mistakes and unnecessary financial risk.
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