This Valentine’s Day, have a look at 5 money moves that would ensure you and your spouse are enroute to build a strong financial life together.
Getting married is a lifelong commitment that involves taking care of each other, both emotionally and financially. With changing times, young couples are no more willing to settle with a monotonous post marriage life and instead, prefer to follow their aspirations and dream big. However, to fulfill all such goals, having a strong financial plan in place is an absolute necessity for couples.
So this Valentine’s Day, have a look at 5 money moves that would ensure you and your spouse are enroute to build a strong financial life together:
Discuss your finances and make a budget
To start off their married life on a financially strong note, every couple needs to have honest conversations about their financial position, goals and future plans. Such discussions help in making better decisions and also lay a road-map on how to achieve those goals without compromising on each others lifestyle or aspirations. Discussion points should include your spending habits, current savings and investments, assets and liabilities, and future goals they wish to achieve. Apart from taking up such discussions on a regular basis, couples should make budgeting a part of their financial plan, to put their finances in order and prevent over spending. Ensure that you and your spouse make monthly budgets on how to much to save and invest, and make sure this practice is followed diligently.
Maintain an emergency fund to tackle financial exigencies
The first step towards a strong financial plan post marriage is to create and maintain adequate emergency fund, to tackle financial exigencies capable of obstructing regular inflow of income, such as sudden job loss, severe illness or an accident. An emergency fund ideally amounting to at least three to six times your monthly expenses would assist in tackling such emergencies. In case both of you are earning, consider maintenance of a joint emergency fund with respective contributions per month, or opt for separate emergency funds.
Purchase adequate term and health insurance
Once you get married, you both are shouldered with the additional responsibility of taking care of each other, not just emotionally but financially as well. With the costs of living and medical expenses continuing to rise exponentially, protection through adequate insurance has become an absolute necessity. Make sure you purchase adequate term insurance amounting to at least 10-15 times your annual income.
Term insurance provides an assured sum to your family in case of your untimely demise, which would financially assist them in continuing loan repayments, investments and other expenses in your absence. In comparison to other types of insurance such as ULIPs, endowment plans etc. the premium involved in term insurance is very low, along with larger cover amount.
Additionally, with a single hospitalization bill capable of eradicating your lifelong savings, a suitable health insurance must be bought by every couple, to assist them in bearing such high medical costs. Even if your employer provides health cover, do not remain solely dependent on it, as that policy would lapse once you exit the organization, and may even turn out to be insufficient. In case your income falls under any of the tax slabs, you can avail tax benefits on premium paid towards term as well as health insurance, under Section 80C and 80D, respectively.
Start investing early for long-term goals
Young couples in their 20s or early 30s often shrug off the idea of investing early for long-term goals such as child’s higher education, retirement corpus etc. They fail to realize that the more they delay, the higher would be the chances of either non accumulation of required corpus, or straining your finances in order to accumulate the large corpus within a short span of time, since the financial responsibilities during later stages of life. On the other hand, the earlier you begin investing for your long-term goals, the more time your money would have to grow over time and benefit from the power of compounding.
For long-term goals, Equity Linked Saving Scheme (ELSS) is the most suitable investment option. ELSS products are equity oriented mutual funds which provide the dual benefit of inflation beating returns over the long term, along with tax benefit of up to Rs 1.5 lakh in a financial year, under Section 80C. Despite the re-imposition of LTCG tax @10% on gains above Rs 1 lakh in a financial year, ELSS provides higher returns over the long term of 3-5 years and above, along with lowest lock in period of just 3 years, as compared to its peers such as PPF, NPS, ULIP, Tax saver FD, NSC etc.
Opt for a joint home loan to separately save taxes
Although tax benefits on home loan’s interest and principal repayment are known to most couples intending to own a house, they often fail to make the most of these. In cases wherein both the spouses are earning, a joint home loan should be availed in order to separately avail tax benefits of principal and interest repayment, under Section 80C and 24b, respectively. As most lenders usually offer concession of 5 basis points (0.05%) for women borrowers, it’s prudent to apply for a joint home loan with your wife as primary applicant/first loan holder. However, while taking the joint home loan, make sure you both are not only the co-borrowers, but also the co-owners in order to avail tax benefits. Just being a co-borrower and not co-owner of concerned property would make you ineligible for tax benefits. Moreover, a joint home loan enhances the couple’s loan eligibility for a higher loan amount, along with separate tax benefits for both, which in turn reduces their overall tax outgo.
(By Radhika Binani, Chief Product Officer, Paisabazaar.com)