Young Couples and Financial Planning

As a young couple, you are starting to build a life together, so should you also plan for your financial future together. I understand that talking about money & finance is not the most romantic topic, still, financial planning is an important topic for discussion.

I have seen many young couples often feel restrained to discuss personal finance matters with each other. I believe as the couple embarks on a beautiful new life journey of togetherness in all aspects of life, financial planning should also be a part of it.

Essential Steps in Financial Planning for Young Couples:

1. Set your financial goals together: The best approach is to sit down with your partner and find out the goals that both of you have in common. It is important that you and your partner are on the same page with regards to what goals you have.Then develop a plan that will help you in achieving these goals. Remember, that your goals and priorities will change with time.You have to revisit your goals regularly to make sure that you continue to be focused on your common shared goals and make necessary modification/ changes when required.

2. Owning your house: Having your own house is an important goal in most couples lives. Buying a house is a massive expense, but I would recommend that don’t rush into buying. If you are going for an EMI option, don’t get into financial commitments by foreseeing future income flow. Plan your EMI according to how much you can afford. In my view, EMI should not be more than 30% of post-tax monthly income. However, you can always stretch it to a max of 40%. Anything above that, you will not have anything left to invest.  

3. Plan for your Retirement: Lot of young couples believe that it is too early to think of retirement. Retirement is often the last thing on the minds of a young couple. But, you need to understand that no matter how young you are right now, you are eventually going to be old. So saving and investing a proportion of your monthly income for the future will bring financial security and independence in your life. 

4. Focus on Debt Management: You should together discuss cash flows and debt positions. Eliminating Non-Tax deductible debt should be a top priority.  The focus should be on debt that has the highest financing cost. To illustrate the same, If a couple has both a home loan and car loan running, the focus should be on clearing the car loan first as there is no tax benefit you get on a car loan. However, you can claim tax benefit on a Home Loan.  

5. Make a workable household budget: A budget can help you prioritise your spending and focus your money on the things that are most important to you. The key to budgeting to underestimate income and overestimate costs. Budgeting allows you to save money by restricting your over-spending on discretionary items. 

6. Set up an Emergency Fund: An emergency fund can come to rescue during a job loss, during a family emergency, or for almost anything else that comes along unexpectedly and demands money. With an emergency fund, an unexpected problem won’t turn into a crisis.  An emergency fund should ideally have 6 – 12 months of monthly income in a joint account. 

7. Get your life insured: Whether or not you have children, both life insurance and permanent disability insurance are necessary to protect your income and earning power. You need to ensure that you buy a cover that is at least 10 times your annual income + whatever debt obligations you have.

8. Have medical insurance: A medical insurance helps you save money on unexpected medical expenses without compromising on the quality of health care. Hence, having a family floater health insurance should be one of the top priority.

Financial Planning can be a rewarding way to bond with your loved one. It is advisable to take the assistance of a Financial Planner to develop a robust financial plan basis your priorities and needs. Setting up financial goals early in the marriage will go a long way in keeping the couple stay focused and eventually it will help them achieve financial harmony together.