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Tied The Knot? Now Talk Money

The second in our series on financial planning, we now tackle the newly-wed stage.

Tied the knot? Now talk money
An important element of a successful marriage is the ability to handle money together.

Whether you are in your twenties or thirties, marriage will force you to deal with similar issues.

You will have to consider buying a home. That will entail accumulating sufficient money for the down payment and a regular outgo of equated monthly installments (EMIs).

If you lived with your parents all along, you would have just had to contend with your cell phone bill and personal expenses. Now, the running of the entire household is your problem.

Need a holiday? You will have to check your bank balance to figure that one out.

Since there is a substantial increase in your financial liabilities and your ability to save is under a fair amount of strain, saving will no longer come automatically. It will require a concrete decision on your part. Even if you cannot save the same amount that you did earlier when you were single, don't let go of the discipline of regular saving.

The trick is to get a little more organised and start some real financial planning. While all along the aim was to just save and invest; planning and foresight take precedence now.

Action plan
Insurance must be considered especially if your spouse is dependent on you. Even if your spouse is employed, your earnings will constitute a significant portion of household expenses and loan payments. Therefore, you need to ensure that you are adequately covered and your spouse will get a steady flow of income should something happen to you.

Constantly re-evaluate your insurance needs. For instance, let's say you are a male with a life cover of Rs 10 lakh and your spouse works too. Should your wife have a child and take a break of a few years from work, you will have to reassess your insurance needs because now you are the only earning member and have a child to support.

List down the goals for which you are saving and give them a timeframe. This will help you allocate your investments much more fruitfully.

Let's assume three money goals with a time frame.

i. Down payment for house needed in a few months. The best avenue would be your savings bank account or liquid funds.

ii. Holiday in a year's time: The savings could be parked in short-term debt funds. If your holiday is a little farther down the road, say two to three years, then you could look at income funds or even bank fixed deposits (since income funds these days are not performing as well as they used to).

iii. Retirement fund: To acquire wealth towards this end, equity is the best option.

Your portfolio should be a mix of debt and equity. Even if you are only saving for goals seven or more years down the road where equity seems the logical investment, debt must form at least a small component of your portfolio to ensure stability. If you are not keen on a pure debt fund, you can allocate 10-15 per cent of your money to balanced funds. If you have also invested in fixed return instruments like the Public Provident Fund, Employees Provident Fund, National Savings Certificate and Kisan Vikas Patra, then you need to take that into account when deciding your overall debt-equity balance.

Lesson to be learnt
Buying insurance is important. As for your investments, they must be need-based and time-based.