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With Love In The Air, Have You Tied The Financial Knot? - Outside View by PersonalFN
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With Love In The Air, Have You Tied The Financial Knot?
Dec 30, 2015

Love is in the air as the wedding season (Nov-Feb) unfurls in India. As the saying goes, "Marriages are made in heaven, but solemnized on earth". Cupid, the mythical Greek god of love, is commonly attributed as playing a part in getting people to fall in love.

Perhaps you, like "Sameer", the protagonist from the hugely successful 2004 David Dhawan's movie "Mujhse Shaadi Karogi"(Will You Marry Me), would have popped the question to your "Rani"(Sameer's lady love in the film). If you have watched the movie, you would recall "Sunny", the fun-loving, "wicked"antagonist who tries to create a lot of misunderstandings between the otherwise happy couple. The roller-coaster relationship among the couple, thanks to Sunny's shenanigans, keeps the audience in splits and glued to their seats. However, as most Bollywood films end, Sameer is finally able to shed his reticence and propose to Rani, who happily accepts the proposal.

If one observes carefully, there is an important takeaway from the film, apart from love standing the test of time, our lives have an element like "Sunny(s)"that pulls pranks on us, isn't it? They create a lot of problems between the couple, feeding them with misinformation, which causes them to fight, at times, on frivolous matters. However, this "Sunny"need not always be an individual with flesh and blood.

"Finances have long been a trouble area in marriage,"says Julie Murphy Casserly, author of The Emotion Behind Money", and the current economic crisis is stretching people even more to the emotional breaking point."

It's not the first thing most newlyweds talk about, but at some point early on, couples have to start talking about money. It would be prudent to have this discussion with your fiancee prior to getting married. However, in India, where arranged marriages are a norm, understanding the complexities of one's finances is probably the last thing to discuss-it's even considered a social taboo.

As a society, we are not conditioned to speak intimately about our finances. Money has always been a tougher topic for us to talk about than politics and religion. Moreover, if you're not particularly proud of your financial state, a no-holds-barred discussion may stir up anxiety, embarrassment, and the fear of rejection.

Today we are sharing a few tips to calmly and pleasantly enter this critical conversation in the early stages of your relationship:

  • Expectations: You've probably had a lot of dreamy conversations about your life together. But have you included the "how-we're-going-to-pay-for-this" part? Probably not. Eventually, couples that are headed towards a life-long commitment need to talk realistically about their vision for their future, and the implications that vision has for their finances.

    Is it Romantic? Not really. But is it Necessary? Definitely. It is wise to cover everything. How soon do you want to own a house? How do you think children will change your financial picture? Will one of you want to stay home? Do you see yourself changing jobs? An honest conversation now can save you both heartache later.

  • Savings: Whether you have Rs 100,000 or Rs 5,000,000 in savings, you need to talk with your partner about what you've got and what you're saving it for. How important is it to you to have money in savings? What kind of sacrifices have you made and willing to make to put money away? What investments do you have or hope to have?

    Planning for your retirement, child's college funds, vacation or contingency planning will be an ongoing conversation in your relationship.

  • Money Personality: It is important to know the ‘money personality' of your spouse while discussing your finances. Money personality is one's outlook towards money. One's outlook towards money has been shaped by a number of factors, such as what you picked up from your parents, the media, and even bad financial decisions you have made in the past. Understanding how each of you think about and deal with money is the foundation of a healthy relationship. It is vital to know each other's outlook towards finances, understand the similarities, talk through the differences and think about how you will compromise if and when the inevitable conflicts come up.

  • Debt: Debt can be a touchy subject. Some people are raised to never borrow money unless it's a matter of life and death. Others are taught that it's acceptable to take out a loan --- even if it's to indulge in a luxury item that isn't really affordable. Reconciling these positions in a marriage can be touchy and challenging. There is no substitute for an honest conversation about debt. Whatever be the case, tell your partner about it. Figure out how the two of you will pay it off (if you both are working). How will that debt impact your finances for the next few years? How can you work together to manage the debt? Lying about debt leads to something we call "financial infidelity" which may lead to a rocky start to your relationship.

  • Income: Get a realistic picture of the present and the future by talking about how much you make. It's puzzling to know how many individuals don't really know what their spouses get paid. Not only will knowing this help you make plans in the first few years of your life together, it also helps prevent money secrets from creeping into your marriage.

  • Expenses: Discuss on the state of your expenses. Highlight the car payments, the EMIs, the medical expenses, etc. that you are currently bearing. Hopefully, you have a good sense of how much money you spend in a month, but if you don't, this is a good time to figure it out together. You should both think through every regular expense you have and will make, and write it down.

    Combine those totals to get an idea of how much you'll spend as a couple, and compare it to your joint income. How does it look? Are your combined expenses lesser than the family income, leaving you an opportunity to save? Or are you spending more than your earnings? In that case, you'll have some budget decisions to make before combining your incomes.

    Budgeting: It's a known fact that the key to financial success is to "spend what you have after saving, rather than saving what's left after spending."Many couples find themselves in the latter position because they lack a budget to control their expenses, often leaving them with nothing to save. It's usually better for a couple to sit down and list their monthly income and expenses. Then it becomes a matter of determining how they will control expenses, so they can set money aside to help achieve their goals.

  • Responsibility: Deciding who takes on the responsibility of paying the bills and handling financial matters can be a question of convenience or expertise. One partner may have more time to handle these aspects in the marriage or could be more responsible. Being clear about who will manage day-to-day money matters is important for a smooth financial planning.

  • Discuss bank accounts: Many older individuals already have their own savings account. The question is whether to combine everything into joint accounts or keep them separate. It's a dogma in India to have only joint accounts. Joint accounts helps unite the couple's goals and can help create a more effective investment program. Although, joint accounts have their own fair share of benefits, nevertheless, with both the husband and the wife having distinct career aspirations today, keeping separate accounts may seem to be a prudent practice.

    Having separate accounts let's each individual feel independent, knowing that he or she can tap his or her finances whenever the need arises.

    One solution to consider is to keep separate accounts and have a joint account that both individuals contribute to for household expenses.

  • Estate Planning: No matter how young or old the couple, addressing estate planning is vital. However, because there's really never a "good"time to discuss issues involving death and disability, couples tend to put off estate planning-sometimes until it's too late.

    When two people decide to take responsibility for each other, it's appropriate to talk about how they want to provide for an orderly transfer of assets. Included in the discussion should be considerations of the financial implications on the bereavement of a spouse.

To Conclude:

Marriage and money can be tricky, but the best thing you can do is be open and honest. Start off on the right foot by talking about money management and coming up with a solid plan to deal with budgeting, spending, and investing as a couple. The sooner you do this, the better it is for your financial freedom.

If you form good money management habits as a newly married couple, you'll be able to work as a team through whatever life throws at you for many years to come. Avoid emulating your neighbours; what may work for them may not work for you. It is important to have a strategy in place which resonates your own ideologies, goals, and outlook.

At PersonalFN, we understand that this journey can be challenging and at times, stressful. Our Financial Planners tend to be a reassuring friend, than a badgering uncle. Connect with us to understand how we continue helping our clients develop a sound financial roadmap that echoes their outlook towards life and money.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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