Money matters for newly married couple
If you don’t have time to read through the whole article, you can check out our short version below.
As a couple, planning your finances early will help both of you accumulate wealth and prevent conflicts. Here’s how:
- Share your financial goals and duties. This helps with long-term personal and family planning.
- Exercise accountability and avoid hiding significant financial activities from each other.
- Separate your expenses with the use of personal and joint bank accounts.
- Set up a financial plan early to achieve short and long-term goals like retirement, after setting aside emergency funds.
- Especially for single-income couples; ensure that a will, a Lasting Power of Attorney (LPA) and CPF nominations have been set up.
Marriage is a major milestone in life. For couples who are about to get hitched or have just signed the dotted line, adjusting to sharing your life with another person can bring about new challenges. Conflicts over money issues rank high among couples, so it makes sense to start talking about finances early.
When money issues are managed well, the power of two is not to be sniffed at because having two streams of income can lead to a faster rate of wealth accumulation and enhanced financial well-being.
Tips on managing finances as a couple
Sharing of financial goals
Communicating with our spouse about finances is not a walk in the park because our upbringing and experiences shape how we save, spend and invest our money. Still, it is important that a couple understands each other’s money habits, where they stand financially and are aware of their financial goals. These goals will usually tie in with expectations on whether a couple plans to have children, type of children’s tertiary education, owning a house, and even when they plan to retire.
When a couple has clearly stated goals, they can avoid unnecessary impulsive expenditure that may add stress in the relationship. Having common goals will also help set the parameters for the household budget, the need for sufficient insurance protection and a comprehensive financial plan to achieve their aspirations.
Seeking the help of a professional wealth manager can help you set your priorities and achieve your goals.
Sharing of financial duties
It is useful to assess the differences in income and money management strengths of each partner to determine the division of financial duties. The one who is financially savvier may take on the role of assessing investment options for the family, while the other can take charge of managing bills and bank accounts.
Even if one partner decides to take full control of all financial decisions, it is prudent for the other to have access to the accounts and be kept abreast of the money flows and investments.
Avoiding financial infidelity
Financial infidelity includes hiding a bank account or failing to mention a significant expenditure to your spouse. Top money lies include not being upfront about debts and under-declaring one’s income. Such dishonesty can undermine the level of trust between a couple and can potentially lead to a breakdown in the relationship.
Unless the deceit is “necessary” because of circumstances like the partner is a compulsive gambler, honesty between a couple is still the best policy.
For instance, if you have chalked up a mountain of debt, it is better to be transparent to your spouse and seek to clear the debt as soon as possible.
Sharing of banking accounts
There is no one solution that fits all households. It depends on income levels, marriage assets, and whether you have other financial commitments such as supporting a sibling’s educational needs or your parents’ medical bills.
For a start, think about which expenses you want to keep separate and which you want to share.
Instead of a single joint account which makes it difficult to track individual savings and spend, some couples adopt the approach of a joint account while retaining their separate individual accounts. They each set aside a specified amount monthly (which can be proportional to their income) into the joint account and use this account to pay expenses like household bills. Meanwhile, they use their individual accounts to fund their own spending.
One advantage of this method is that each person retains some degree of personal space and financial autonomy.
Being accountable to each other
In most cases, there is no need for couples to be accountable to each other for all purchases. Doing so may be stifling and put undue pressure on the couple. An exception to this may arise if one partner has poor money habits and is unable to manage money or his/her own responsibly.
Depending on the couple’s financial situation, it is advisable to give a heads up before purchasing big ticket items especially if it will adversely impact their ability to achieve financial goals that they have jointly agreed on. One way round this is to set a threshold amount, and to discuss finances together regularly.
For most married couples, this is likely to be a financially challenging period especially if they are from the sandwich generation, that is, they are looking after ageing parents as well as their own children.
Ensure that you are adequately insured so the family can carry on with your lifestyle even if you are no longer around. This means having insurance cover for hospitalisation, critical illnesses, home loan, car and children’s tertiary education.
Some parents tend to rank their children’s education needs and well-being ahead of their own retirement planning. It is advisable to embark on a financial plan early and build multiple income streams that can fund both short-term and long-term needs like retirement. Let the long-time investment horizon and power of compounding work for you.
And as couples advance in your career, continue to save and invest especially when you have pay increments and bonuses.
The rule of thumb is to have at least three to six months of emergency savings to keep your lifestyle and investment plans on track. For those who are self-employed, have at least 12 months set aside. This will come in handy if a medical crisis occurs or if one party loses his or her job.
These savings need not stay idle in the bank account. Make them work for you by parking them in higher yielding bank accounts like the DBS Multiplier account that can offer up to 3.8 per cent annual interest, subject to conditions. Another option is the risk-free and flexible Singapore Savings Bonds.
Retirement may seem distant to a newly married young couple. Still, it is prudent to start discussing your retirement expectations early and review them regularly.
Work out the desired retirement lifestyle, the likely needs and wants, and match them with multiple income flows from a diversified portfolio of savings and investment tools.
Consider using government schemes like the Central Provident Fund (CPF) and the Supplementary Retirement Scheme (SRS) to help grow and optimise your nest egg while enjoying tax reliefs. For example, you can do top-ups to your higher interest yielding Special Account (4 per cent p.a.) to build your retirement savings faster. Another tip is to use idle cash - after setting aside emergency cash – instead of Ordinary Account savings (2.5 per cent p.a.) to pay your housing loan.
Making the most of twice the investing power can result in more opportunities for wealth accumulation. Young couples also have a long time in which to grow their investments, so they can afford not to be too conservative when investing.
At all times, do keep diversification in mind as a couple to ensure that your portfolio has the right mix of assets to meet your goals and is aligned with your risk profile. Products to consider include stocks, unit trusts, exchange-traded funds, bonds and real estate.
By constantly upgrading your financial literacy and adopting a comprehensive financial plan, you and your partner will be in a better position to make informed money decisions and invest wisely to achieve financial freedom. Besides financial needs, it is important to keep healthy and consider the emotional and social aspects of retirement.
Single income couples
For families with a sole breadwinner, it is even more important to maintain an adequate emergency fund to withstand unexpected financial shocks. Single income couples should consider the number of dependants when working out the amount of emergency cash to be set aside.
Another tip is to top up your spouse’s CPF account especially if he/she has low CPF balances. You can transfer your CPF Ordinary Account savings after setting aside the Basic Retirement Sum (which is $90,500 this year) in your own CPF accounts to top up your spouse’s CPF account. Both will benefit from the extra interest that will be paid in the respective accounts and there is peace of mind as the spouse will have his/her own source of retirement payouts.
Although estate planning is important for everyone, there is a greater urgency for single income couples to ensure that a will, a Lasting Power of Attorney (LPA) and CPF nominations have been set up. This will enable proper and smooth distribution of the breadwinner’s assets and avoid disrupting the family’s lifestyle and financial well-being.
A will takes effect after death, while an LPA helps you appoint people you trust to act on your behalf if you should lose mental capacity. A CPF nomination helps to specify who will receive your CPF savings.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.