Every family wants to reduce their financial burden and generate savings for long term benefits. It is important to have discipline, trust, and strategic thinking when running a household as a couple. With shared needs, financial goals and responsibilities, couples need to discuss and create a framework to effectively manage family finances. This will prevent disagreements and help in achieving common goals easily. In this article, we come up with some practical tips for couples to plan their money better.
Couples should make decisions about money together
Couples, after getting married or settling down in a house, set out on the journey of life. The initial stage involves planning for the future and setting your financial goals. This is the stage when the couple should talk openly about their income, spending habits and shared goals. After a few years, conversations between couples mostly revolve around children and securing their future and retirement plans.
set financial goals
Couples should define their financial goals in short-term and long-term goals. Short-term goals may include planning an international vacation or purchasing a vehicle, all to be accomplished within a year or two. However, long-term goals are those that require planning and are often achieved over more than five or 10 years. These include children’s marriage or higher education, buying a house or retirement plans. Based on these goals, the couple can decide whether the budget should be divided or joint.
Create a joint budget for shared purposes
Couples who share dreams often plan big milestones such as buying your first home or car together. Opening a joint bank account is a practical way to meet shared family expenses. Some expenses that couples should think about sharing are:
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emergency fund: couples should unite emergency fundWhich may be sufficient for three to six months. -
Joint Fixed Deposit: Opening a joint fixed deposit (FD) can help couples save together. -
home loan: Joint home loan will increase tax savings as both husband and wife can claim tax deductions separately. -
Children’s education: invest in Systematic Investment Plans (SIP) and contributing together is a smart strategy that couples can adopt to secure the future of their children. -
Retirement Planning: Couples should work as a team and plan for their retirement by starting to save money together. They can create a joint retirement budget to manage expenses related to health care, insurance, etc.
How to divide shared costs fairly?
If both spouses are working, it can mean better financial stability for the household. However, it becomes necessary to divide financial responsibilities and decide who will contribute to a specific goal, such as household spending, savings or investments. It is not a good idea to contribute equally to shared expenses if incomes differ. Instead, contributions to shared costs should be in proportion to each person’s income. For example, if the husband earns more, he can contribute to household expenses while the wife can focus on savings.
Apportionment of expenses works when there are personal expenses and personal investments. In the initial stage, couples may be more comfortable managing their expenses separately than they used to. Therefore, it makes more sense to keep separate accounts. Additionally, expenses can be divided based on who is earning more. The person earning more income can pay higher costs like rent and EMIs, while the other can handle minor expenses.
How to handle transparency, conflict and planning?
Timely review of financial plans
Couples go through changes in life. Responsibilities increase after the birth of children. Therefore, it is important to review finance and investment strategy regularly.
When spending habits differ
Differences in spending habits of couples are a common cause of fights. It is important to find a solution instead of blaming the other person. For example, keeping separate personal accounts for certain expenses.
balancing separate and shared goals
Couples must know how to balance their shared goals and individual financial needs. Taking a hybrid approach may work here. A separate account for personal expenses can eliminate possibilities of disputes.
questions to ask
Should couples merge accounts completely or only partially?
Couples should not completely merge accounts, especially when there are different incomes and individual financial needs to be met. It is better to adopt a hybrid approach where there is a joint account for most common goals, like children, buying a house, retirement, etc. For small lifestyle expenses, they can maintain their personal savings account.
How should shared costs be divided when incomes are unequal?
When incomes are unequal, shared costs should be divided based on who is earning more. A 50-50 split may place a financial burden on the person who is earning less. Alternatively, a joint account can be created and each person contributes based on their individual capacity and the funds from the account can be used to meet shared costs.
Which goals should be planned jointly and which individually?
Typically, shared family goals include buying or renting a home, funding children’s education and future, building an emergency fund, etc. A couple should contribute jointly to these goals. On the other hand, spending on lifestyle and hobbies and family obligations can be controlled individually.
What conversations about money are necessary before a big life move?
Before important life steps like children’s marriage or retirement, couples should have detailed conversations about planning their finances. They should discuss their income, existing debts and savings plans. Accordingly, they can come up with a solution that will work for both of them and avoid the possibility of any disagreement.
