Why newly married couples need to review their financial goals
Weddings can be expensive and there is usually a tendency to overspend. The expenditure on a wedding ceremony, the purchase of wedding bands, and other expenses like hiring a photographer can add up to a large amount.
Post-marriage, couples are often put in a position where they struggle to pay off the amounts that they owe for these expenses. The subject of setting financial goals for the future usually takes a backseat.
However, it is absolutely essential to take stock of your finances soon after your marriage. You need to figure out how you are going to meet your day-to-day needs, save for the large expenses that inevitably confront a newly married couple, and even set aside money for your retirement.
Buying your own flat
Purchasing a home is usually a top priority for newlyweds. But with Singapore’s property prices being among the highest in the world, you need to plan your acquisition carefully.
Buying your own place becomes easier as both the husband’s and wife’s incomes can be used to pay the monthly instalments to the bank. A 30-year home loan of S$600,000 at an interest rate of 2% will require you to pay a monthly instalment of S$2,218. Of course, this amount may change with a variation in the interest rate. You should be careful not to overextend yourself and take on more debt than you can comfortably handle.
Even if you buy a small flat, a home loan may put a big dent into your budget. It could still be a good idea to plan on buying your own flat as early as possible. Waiting for several years may mean paying more for the same property.
Additionally, as you age, your eligibility for a long loan tenure correspondingly declines. According to the rules in place, your loan must be paid off by the time you reach the age of 65.
Planning a family
When you consider the expenses involved in raising a child in Singapore, the figures can be daunting. A recent report estimates the amount at a minimum of S$200,000. The upper limit? The report says that you could spend as much as a million dollars.
Visits to the doctor and hospital expenses for the delivery of your baby can add up to several thousands of dollars. Subsequently, you have to contend with preschool fees, daycare, and the expenses involved in gaining admission to a good school. You will also have to start saving for your child’s university education as early as you can.
If you add up all these expenses, the total can be quite large. It is difficult to predict how much you or your spouse will earn in 10 or 15 years from now. But that does not mean that you should not have a plan on how you will meet the expenses of raising a child.
Get a grip on your finances
What is the best way for a newly married couple to plan their finances? The first step that you must take is to list down what you own and how much you owe. Next, write down the amount that you earn every month and how you plan to spend/invest this money.
Your review could follow this outline:
- How much does each of you have in your savings accounts? In term deposits? Do you own any stocks, savings bonds, or mutual funds?
- Do either of you carry any debt? Credit card debt is the worst type. Read this to understand how credit card debt can eat up a large part of your income if you don’t pay it off quickly. In fact, the first financial priority that newlyweds should have is to pay off credit card debt.
- Do both of you agree about how you should handle household expenses? It’s best to draw up a budget and review it periodically.
- A crucial part of the budgeting exercise will involve the allocation of money towards your financial goals. You may want to set aside a sum every month for the children that you are planning to have. It is also important to start saving for retirement as early as possible.
Are you planning to maintain separate accounts
This is a question that every couple will have to face sooner or later. The specific issues that you need to address include how the income that each of you earns will be utilised. More importantly, you will have to decide whether you will operate a joint bank account or continue with your individual accounts.
While each couple will have to work this issue out on their own, it is best to lay down the ground rules as early as you can. This will ensure that there is a lower probability of miscommunication.
You will also need to address the question of your financial assets. One approach is to convert all stock, mutual funds, and other financial holdings from individual accounts to jointly held accounts. You could also decide to maintain the status quo and let the assets remain in your individual names.
Getting it right from day one
It is important to have a discussion about your joint finances with your spouse as early in your marriage as you can. Deciding on a household budget and staying within the expenditure limits that you have set for yourself will help you to allocate a greater amount towards your investments.
You will also need to decide how you will deploy the money that you set aside every month. It is likely that one partner has more knowledge about investments than the other. But this should not mean that the entire responsibility of investing your joint savings falls on that person. Instead, both the husband and wife should periodically examine their investment portfolio and review its performance.
Disagreements about money can lead to marital strife. You may want to use the services of a financial adviser to help you with your plans. Even if you are familiar with various types of investments, a disinterested party’s opinion could prove to be very useful.