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How To Plan Finances After Marriage (And Still Love Each Other)

Marriage is a game changer on many levels. New dreams, new goals and new relatives – all shiny and with a bucket load of expectations. Amidst this, you and your spouse will continue to build a new life together, the one filled with love and tenderness. While for some enlightened couples, managing their combined finances is a piece of cake, for a lot of us it is the biggest thorn to be carefully pruned. Financial discussions have often led to higher decibels in the household in newly-wed couples and they continue to be so until sorted out. So, how to plan finances after marriage and still love each other? Here’s how:

 1)Be Honest and Share Your Current Financial Situation

Marriage is a fresh start, or at least could be treated as one. The best way is to share your financials with your spouse with honesty and respect. If you could do this before marriage, it’s better. Often times with arranged marriage, it may not be possible but every effort should be made to get this important discussion started as early as you can. Start talking about your income, debts, and other savings and expense habits.

2)Set Down Goals

Now that you are married, you might have some dreams together – a house, an international vacation, a car, higher education, etc. Each of them needs significant investment that needs to be planned. You also have the inevitable retirement goal as part of your long-term financial planning. Write down all these goals and review them often. Doing this at the beginning of the marriage gives a clear idea of what path to financial management you need to do together for meeting those goals. For example, if you both plan to retire at 40, you have to earn and invest aggressively, save more and spend less now to accomplish that.

 3) Decide on Bank Accounts

You are not required to have a joint account just because you are married. However, one can use a joint account as a common pool, or goal-specific account while maintaining separate accounts for independence. For example, if you plan to buy a house together in five years and decide to save Rs 5000 each every month, then set up a joint account so that both can deposit Rs 5000 in it. It not only acts as a pool both are responsible for but also brings in the team spirit in marriage.

 4) Create a “family” portfolio

`Before marriage, you and your spouse had your own investment portfolio that perfectly met the needs of your goals then. In fact, you might have also invested keeping some long term goals in mind like retirement. Post-wedding is an excellent time to take a look at both of your portfolio and combine them for your money to grow for common goals. An example of a common goal is buying real estate. Combining your portfolios in to a “family” portfolio is important as it will help you plan better and define your appropriate asset allocation. Get in touch with a good financial planner to run an end to end planning exercise and kick start your family investment journey.

 4) Don’t Forget Emergency Fund

No matter what your goals are as a couple, ensure that you set up an emergency fund. An emergency fund is a financial cushion for you and your spouse when something expensive and unexpected strikes like an accident or job loss. Having money to rely on is a great stress relief and will reduce strain on your marriage at particularly bad times. Aim to save at least six months of income in your emergency account.

 5) Plan and Track a Budget

Easier said than done, but planning a budget with your spouse is one of the smartest thing you would do in your marriage. It sets financial behavior expectations from each other while helping you both visualize how it helps you get closer to your goals. Planning a budget is not rocket science. Once a budget is set, track it every day to ensure you are on plan. You can use the numerous apps that are available on your phone to do it seamlessly. Or do the old-fashioned way on paper and pen and spend some quality time away with your spouse from the white screen.

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What To Do With Your First Salary?

First salary is special for everyone. It establishes an individual’s earning footprint and we all only hope that it goes uphill from there. The sense of freedom that comes with a first salary is unparalleled. So, it is only right that we make the best of our first salary. Fun fact: We have too many plans with it! So, if you are feeling like a deer in the headlights, you are not alone. That’s why we have put together some ideas that would make you make the most of your first salary.

 1. Save 20% of Your First Salary (and every salary thereafter!)

First things first. Of all the dreams that you have with your first salary, going broke isn’t one. And the smartest people around you would ensure that their savings account is filling up and zipped tight right from their first salary. But how much to save? Make the math easier and save 20% of your salary. Contact the bank that holds your salary account and set up an automated transfer of 20% of your monthly salary to a separate savings account. As long as you do that, you never have to worry about going bankrupt again.  And oh, if you want to grow it further, try investing in Debt Funds that could provide a relatively low growth but steady enough with lower risk. You can even start small.

2. Buy Something For Your Parents (Or Even Better Give Them The Rest Of The Salary)

Remember all that you have put your parents through growing up? It’s payback time honey! Needless to mention, your parents deserve it. Most parents are fine just knowing that their child has a job now that doesn’t involve being chased by police, but you should know better. They have sacrificed enough for you. Perhaps, you can part with some of your salary to buy some thoughtful gifts for them? And while we are on the topic of parents, if you were day dreaming while they dutifully imparted financial lessons to you, here’s your chance at a refresher.

 3. Pay Off Debt (And Make a Habit of Staying Out Of It)

I know it’s not easy to pay off education loan with your first salary but you can make a start right away. Make your parents proud and start paying it off without asking your Dad to do it. And if you have borrowed money from anyone else, paying them off is the best thing you can do with your first salary. You will be proud, stress-free and guess what, all ready for the best part of earning your first salary. Oh, and did we mention about making a habit of NOT taking any more unnecessary debts?

 4. Spend On Yourself (But Don’t Get Credit Card Debt!)

After all the good deeds you did with your salary, now is the time to finally pay yourself. Remember those million odd dreams you had with your first salary? The ridiculously expensive phone, that designer bag, or that Bose speaker that you probably won’t have time to listen to are still at the closest mall around you. They are waiting to come home with you. Free the reigns and treat yourself. You totally deserve it! Just don’t get into Credit card debt, will ya?

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Should you save and invest for your child’s education?

If you did your MBA from IIM Ahmedabad back in 2007, you probably paid somewhere around 4 lacs. Your younger sibling would have paid somewhere around 21 lacs this year. That is 4 times of what you must have paid and a staggering 23% annual increase in the fees.

If the cost of education rises at this pace, after around 18 years, your child will need a whopping Rs. 8.7 crores for the same program at IIM-A. Even at a 10% annual increase in cost, that amount would be close to Rs. 1.2 crores.

Education costs have been increasing at a rate higher than the usual inflation. And the same is true for elementary, primary and secondary education.  Not to mention the additional cost of coaching that you have to incur at different stages of education. The above numbers clearly indicate a need to focus on how you intend to fund your child’s education.

This article seeks to help you formulate a plan for your child’s dream education no matter how old your child is.

For the sake of relevance, let us have 3 categories:

Category 1: If your child is under 10 years of age

Your child in his early years of schooling and has a long way to go in terms of pursuing his education. Planning for children in this age bracket is the easiest simply because you have more time to save and invest. The earlier you start, the more corpus you create. Following are the 3 things you should be doing if you fall in this category:

  1. Start a monthly SIP in a portfolio of mutual funds with predominant exposure towards equity. The time horizon is long term so you may have decent allocation towards mid and small cap funds, if you risk appetite permits that. This will enable you to create a substantial amount of wealth over the long run (Over 7 years).
  2. Every year, try and estimate the corpus you need to fund the education at both graduation and post – graduation stage. Accordingly, increase your monthly SIP every year to ensure that you are able to garner the required corpus. While SIPs in equity mutual funds will help you create wealth, increasing them every year will ensure that you don’t fall short of the amount you require.
  3. Park a small sum of money in a debt fund for any short term requirements. This will ensure that you have surplus funds available for any contingencies.

Category 2: If your child is between 10 – 15 years of age

Your child is probably nearing completion of school and will soon be ready for graduation years. This means that while you do still have time for post – graduation, you might not have enough time for saving to fund his graduation. Following are the 3 things that you should do:

  1. Park your surplus money in a portfolio of debt equity funds. The split between the two categories will be determined by how many years are you still away from completion of school.
  2. Start a monthly SIP in a portfolio of mutual funds and asset allocation is key for such investments. You may keep an allocation of 30-40 percent in debt funds and the remaining exposure should be in a diversified basket of equity funds. The asset allocation should be monitored regularly and should be shifted entirely towards debt as you approach the time when you would need the fund. This will enable you to create a pool of wealth over the long run (Over 5 years).
  3. Increase your monthly SIP every year simply because you have relatively lesser amount of time to save for the post – graduation requirement.

Category 3: If your child is between 15 – 20 years of age

Your child has grown up is perhaps nearing his post – graduation years. As such you have only a few years before she completes graduation and goes for higher education. Here is what you should be doing:

  1. Park your surplus money in a portfolio of debt funds. The split between the two categories will be determined by how many years are you still away from completion of school / graduation.
  2. Start a monthly SIP in a portfolio of mutual funds and asset allocation is key for such investments. You may keep an allocation of 60-70 percent in debt funds remaining exposure should be in a diversified basket of balanced equity funds. The asset allocation should be monitored regularly and should be shifted entirely towards debt as you reach towards the year when the funds are required. However, your exposure should not include the risky category of mid and small cap funds.
  3. Increase your monthly SIP every year simply because you have relatively lesser amount of time to save for the post – graduation requirement.

How do we help?

At CAGRfunds, we help you estimate the amount of money you will require at every stage of education. We also help you define your most suitable portfolio. As you start investing, we ensure that our tools continue to review and re-balance your portfolio whenever the need arises.

Contact Us NOW!

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Top 5 Financial Mistakes New Parents Make (And How To Avoid Them)

Being a new parent is a special experience and comes with a learning curve that knocks the sleep off many, quite literally. Surviving on three hours sleep routine is no joke. So is ensuring your finances are as tough as your baby’s grip on your finger. After all, you have an additional life depending on you for survival. Yet, in the midst of the whirlwind a new baby gets into our routines, many give our financial health a slip. Some of these missteps could be costly in the future.

Here are top 5 financial mistakes new parents make and how to avoid them.

Mistake #1: Failing To Make A “Baby Budget”

Having a baby is an experience that’s hard to be taught. The baby brings surprising changes to our lives. But one predictable change is extra expense. Regular doctor check-ups, supply of diapers, formula and other common baby items are not surprises and yet, most new parents fail to allocate a certain amount in their budget for the baby expenses. Every new parent need to carve out a place for the baby in the budget before the baby arrives. Experts advice to start living out that way couple of months before the baby arrives to get used to the change in your
expenses.

So, if you are an expecting parent, put some thought into the potential expenses and make a “baby budget”. If you already have the bundle of joy with you, it’s not too late to plan one now. And do not forget to add emergency funds to your budget plan too!

Mistake #2: Overspending

A direct impact of not having a baby budget is overspending and boy, is it easy to overspend on your new baby! The baby may be tiny but the expenses are enormous. The price tags attached to the shiny new stroller, or the whole stack of new clothes (which she is going to outgrow in a few weeks) could be a real eye opener! But resisting the cute, little baby stuff is hard. New parents spend on too many toys, too many clothes, too many “extra” bottles, bibs, pacifiers
because “just in case”. There is no end to it. At the end of the month, you struggle to figure out why you have no money to buy a shirt because well, you didn’t use the extra-soft burp cloth when the baby happily puked on you. Don’t make this mistake.

Babies are easy to please. They don’t need too much of anything but your attention. Stick to your baby budget and buy only the absolute necessities like new bottles. Don’t hesitate to ask for used toys, clothes from other members of the family or friends with older children. There is no shame in it. You are not only being smart about how to manage your finances, you are also inculcating a healthy money habit in your family. This will ultimately be adopted by your
fast-growing child.

Mistake #3: Life Insurance

A baby’s arrival is special but it’s a life long responsibility that spans from her basic needs of food and shelter through health, education and marriage. The costs add up quickly. According to a 2011 report by The Economic Times , the average cost to raise a child is INR 54.75 Lakhs. If the primary breadwinner dies, what happens to your child’s future? It’s an uncomfortable thought but it’s a responsibility that the new parent needs to take with utmost sincerity. And yet, many new parents make the mistake of not reviewing their life insurance after the birth of their
child. This may be unintentional or ignorance.

Fortunately, it’s not rocket science to fix this mistake. The first step is to estimate the expenses of your family including house, health, child’s education, wedding. As a general rule of thumb, it’s recommended that your life insurance be at least five times your annual salary and the other
expenses mentioned above. If you don’t have a life insurance yet, get one today. And make sure your new baby is added as a beneficiary along with your spouse.

Mistake #4: Child Education Savings

The cost of higher education is rising by a whopping 20% yearly. That means what costs INR 20 Lakhs today will cost an incredible INR 95 Lakhs by 2025. What it means to you is saving for your child’s education is an immediate need. But in the midst of paying for diapers and overspending on toys, new parents let this important savings slip by until a few years. Even waiting till the child turns four years old is a big loss in the long term.

Saving for your child’s education should begin from the day your baby arrives. Investing in mutual funds through SIPs is one of the most effective ways to grow and protect your investments in long term. Companies like CAGRfunds have proven how easy and quick it is to get started with goal-specific investments . What more, CAGRfunds also provides tools to track your investments any day and any time.

Mistake #5: Protecting Your Retirement Savings

It is amazing how our priorities drop to somewhere at the bottom of the list once the baby arrives. Rightly so. After all, you are the parent with the humbling responsibility of giving the little guy a nourishing life. Yet, the baby will one day grow into an adult and leave the nest to pursue his own independence. Until then, you have saved and spent a substantial amount of your earnings on making the child able enough to pursue his dreams. So, once he leaves, where does it leave you financially? It’s important to remember that you are growing older with the child. Your earning years are shrinking. Are you going to forego your retirement savings to pay for your child’s growing expenses?

This is a tough situation but we are a big proponent of protecting your retirement savings with both hands (and legs, if possible!). Your ability to earn more diminishes as you grow older. In fact, your salary pretty much flattens once you hit 40. Which means your best earning years are the first 20 years of your career and that’s exactly when you can save the most. It is imperative that your retirement nest is secured with regular saving and investment plans and is
untouchable through the years of child-rearing.

A new-born baby is the center of joy and pride for parents and nothing in the world matches the happiness. This event could be daunting too but it could be made easier with proper financial planning. Be smart and avoid these financial mistakes new parents make. Your child will thank you for it!