published in Mint on Jun 12 2015
Kirtan Shah, 29, plans to get married this December, but the Mumbai-based certified financial planner and chief executive officer of Ambition Learning Solutions, already has a clear view of his financial role post marriage. “I have decided that I will take care of all household and leisure expenses. I will also invest in stocks and mutual funds. My fiancee’s entire income will go only into savings,” said Shah. His fiancee, Anjali Damani, 25, runs an accessories website, www.2amstore.com. The two have already bought a house and a car, and currently don’t have any loan instalments to pay. The only big expense they face is Damani’s MBA.
Shah and Damani are not a usual couple. Normally, when a marriage is decided, the planning is mostly focused on the wedding; the couple rarely talks about money matters that will gain relevance post marriage. Questions such as who is going to pay for what, how much to save, how much to invest, and where to invest, are not thought about. But they should be.
If your wedding day is close, here are five things to put in place right away.
Talk about money
This is the starting point. Many couples find it difficult to talk about finances. “At times, financial conflicts appear even before the couple has walked down the aisle. Some don’t see eye-to-eye even while discussing daily expenses,” said Rajendra Barve, a Mumbai-based psychiatrist. Some are more comfortable talking about finances. “Often, both will be earning and leading independent lifestyles. They discuss things like who will be in charge of expenses post marriage,” said Pratima Havaldar, a Mumbai-based psychologist and counsellor.
While discussing money and expenses, be open and express your agreement or disagreement to an arrangement. After all, there isn’t one right way to managing finances. “For example, some couples prefer separate finances while some pool in their entire resources and make joint decisions. There is no ideal way,” said Arvind Rao, founder, Arvind Rao & Associates. “One option is to divide day-to-day and recurring expenses. Big-ticket expenses such as car or house can be shared equally or on pro rata basis depending on income patterns. This will help optimize tax breaks as well,” added Rao.
Deal with liabilities
Once you start talking about money, don’t shy away from discussing debt. Existing liabilities should be tackled first. Vivek Shah, founder and chief executive officer, Finrise Financial Planning, said, “How much a person discloses differs, but there should be open communication. This can be especially difficult to do in an arranged marriage scenario. Sometimes, one partner may have taken a loan before marriage but the responsibility to pay it falls on the other after marriage.”
Once you know the quantum and type of debt, organize them. Pay unsecured loans on a priority since these come with the highest interest rate—for example, 12-32% for personal loan and 22-44% for credit cards, according to Deal4loans.com, a loan comparison website.
“Personal loans should be paid aggressively, even from savings. It is advisable to start investments only after a personal loan has been paid off,” said Shah.
Secured loans come next and can be paid in instalments. “Some secured loans help build an appreciating asset, such as a house, while others, like a car loan, are for a depreciating asset,” said Dilshad Billimoria, founder and chief financial planner, Dilzer Consultants.
Create a safety net
Next step is to build a safety net in the form of insurance and an emergency fund. Kapil Mehta, executive director, SecureNow Insurance Broker Pvt. Ltd, said, “Two policies always work: one, a term insurance policy that easily secures dependants, and two, a basic medical insurance policy that takes care of expenses following a hospitalization. If you buy a term plan early, you will pay lower rates throughout the tenor. Also, if you buy a health insurance in your early 20s, chances are you will get good coverage with no caveats.”
For a person in the 25-30 years bracket, premium for a term cover of Rs.50 lakh-1 crore sum assured will be Rs.4,000-9,000 annually.
Couples should get additional health cover even if the employer offers one. “It is prudent to buy a health insurance cover for self and dependants so that even when you change jobs or your company decides to lower your cover, you are on a safer ground,” said Mehta. For instance, a family floater mediclaim for Rs.5 lakh can cost Rs.8,000-10,000 a year.
If insurance is a must then so is having an emergency fund since all exigencies can’t be insured. In an emergency, such as loss of job or an accident, you may have to break an investment. It is prudent to keep aside money to cover at least three-six months’ household expenses.
Identify financial goals
With expenses, liabilities and insurance taken care of, couples can move on to discussing financial goals—which goals are to be achieved individually and which together. The goals can be savings, investments, buying a house or a car, or even gadgets. “Short- and medium-term plans may include a vacation, higher education for self, or even buying a house. We advise purchasing a new home only when downpayment corpus is created, so that cash flow stays comfortable,” said Billimoria.
Discussing the investing and saving pattern, too, is important. “The saving pattern should be based on the goals with proper weights allocated to short-, medium- and long-term goals. Mutual funds, fixed income products, shares and other instruments should fit into the portfolio based on goals and time horizons,” said Rao.
Shah and Damani’s combined portfolio has investments in equity-linked saving schemes, equity diversified funds and mid-cap funds. They plan to use 70% of this to fund the wedding, and the rest will remain invested for the long term.
Naveen Nair, 28, and Neha Khullar, 25, are also heading towards their wedding in December. Nair, who works as a consultant at an auto firm in Delhi and stays in a rented apartment, wants to buy a house but thinks it is too risky a proposition at this stage. Anyway, the duo are yet to decide which city to stay in post marriage.
Almost all of what Khullar, who works in the communications department of German National Tourism Board, earns is invested. Nair has created three “pools” as he calls them—one gets 30% of his savings; second is for funding a PhD later (no loan for Nair); and the third is for emergencies. He is not keen on equities or mutual funds as of now, but plans to invest his savings in upcoming start-ups. Later, he may invest in stock markets through a fund manager but only when he is financially stable. His goal is also to buy a house once he makes enough money through investments.
Get documents ready
Many people choose to change their name or family name after marriage. Make sure the change is effected in bank account, Permanent Account Number card, insurance policies and other investments. A marriage certificate would help in getting this done.
“If the name change doesn’t happen then the couple might face issues in investments and insurance. It may affect future joint investments,” said Shah.
Do remember to change nominations in investments, policies and in a Will. Make copies of documents and keep at different locations—say, with a trusted family member, or financial adviser. Inform your dependants about this.
Keeping soft copies with yourself and with at least one more person is advisable. Original documents or copies can be kept in a locker as well.
Mint Money take
If all or even some of these pointers are discussed, financial communication between partners post marriage will be easier. It is also recommended to take professional help to understand the nature of your finances and plan accordingly. Unlike a wedding, being financially prepared doesn’t cost a thing, and lasts long.
published in Mint on Jun 12 2015