Saturday, June 21, 2014

Best practices of money management post marriage

 I have requests from my ex students who are either married or getting married shortly - the request is to share some best practices of money management post marriage.

So here is my list - I am assuming that the couple is living alone.

Best practices in Financial planning

  1. If you both are working, then it is logical to have two independent bank accounts for salary and tax purposes. 
  2. But once the money comes into your salary account – transfer the whole amount into a joint account that can be operated by both of you. Do not keep track of my money vs your money. The money earned by both of you is common. Use this joint account for all expenses and for all savings and investments.
  3. Make a long term financial plan for the family – a 20 year plan is what I recommend. In case you want more details, please read the first few chapters in my book –the financial planner template that I have discussed in my book is also available here for you to download (you will need to read the book for understanding the logic though) - .
  4. Keep track of all expenses. There are quite a few expense management apps available that run on smart phones –use one common app (with two accounts -one for each one of you) and record the income and expenses on a daily basis. At the month end, one of you must collate the income and expenses and update your annual financial cash flow plan.
  5. Create a budget for all expense heads that you use in the financial plan. Try to live within this budget. If the budgets are low, then increase the budgets in the financial plan.
  6. You must internalise the difference between spending on assets vs spending on liabilities. Assets are the ones that give you money (e.g. education is an asset as it increases your earning power)  and liabilities are the ones that take money away ( e.g. a car or TV is actually a liability). Remember the rich spend on assets and the not so rich spend on things they think are assets but are actually liabilities.
  7. Keep an eye on the financial plan vs actuals every six months and modify the plan if it is deviating from the actual.
  8. Discuss your financial plan with your spouse every few months so that both of you are in sync on the path ahead.
  9. Use credit card as a convenience tool –do not take a loan based on the credit limit - only use it if you have money in the bank.

Best practices in Investing

  1. Learn investing – start with MF’s – it is easy to learn.
  2. Move towards stocks if you are interested.
  3. Study the real estate market in whichever city you want to invest in.
  4. Avoid fixed deposits and Insurance schemes that are positioned as investment and tax saving schemes.
  5. Start SIP’s in a few MF’s so that your savings are automatically invested in select MF’s.
  6. You must aim to invest in a property with the help of your savings and a home loan as soon as possible
  7. Surely measure your ROI from investments every year. Over time the ROI must be 15% or more .
  8. Insure yourself and your spouse through a term insurance policy.
  9. Take an insurance cover for your vehicle and house.
  10. If you do not have a hospitalisation policy through your company – then take one.
Over time, these money management practices will result in you "Getting rich and retiring early".