By Lorna Tan
Head, Financial Planning Literacy
If you’ve only got a minute:
- The power of 2 is not to be sniffed at because having dual income streams can lead to a faster rate of wealth accumulation - through big ticket purchases such as home ownership and joint investments - and enhanced financial being.
- Some parents tend to prioritise their children’s education needs and wellbeing, but it should not be done at the expense of retirement planning.
This article was first published in The Business Times.
This Valentine’s Day, consider a long-lasting gift that goes beyond chocolates, flowers and candlelight meals. As a gesture of love, embark on a financial planning journey together as a couple with open communication.
Money is often cited as a top stressor in relationships, but it doesn’t have to be. Discussing financial goals as a couple can strengthen your relationship and help ensure you are on the same page. Whether it's saving for a dream vacation, buying a home, or planning for retirement, aligning your financial goals early can contribute to a healthier and more secure future together.
The power of 2 is not to be sniffed at because having dual income streams can lead to a faster rate of wealth accumulation - through big ticket purchases such as home ownership and joint investments - and enhanced financial being.
Here are 8 tips to help build your shared financial future.
1. Financial goals
Communicating with your spouse about finances is not a walk in the park because your upbringing and experiences shape how you save, spend and invest money. Have empathy when starting the money talk with your partner and aim to understand each other’s money habits, financial situation and aspirations. These goals will usually tie in with expectations on whether you plan to have children, type of children’s tertiary education, owning a house, and desired retirement lifestyle.
When a couple has clearly stated goals, they can avoid unnecessary impulsive expenditure that may add stress in the relationship. Having common goals will help you proceed as a team and set the parameters for household budget, insurance protection and a comprehensive financial plan to achieve objectives.
2. 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 your 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.
In most cases, there is no need for couples to be accountable to each other for all purchases as this may give rise to undue pressure. However, 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 the couple has jointly agreed on. One way round this is to set a threshold amount, and to discuss finances together regularly.
3. 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, investments, and any estate planning tools such as wills, Lasting Power of Attorney (LPA), and CPF Nominations.
4. Household bills
As your lives intertwine, there would be more items to pay for such as household bills for your groceries, petrol and mortgage, amongst other things.
Here are some common ways couples split their bills:
- Full merge
- 50-50 split
- Proportional split based on percentage of income
- By item (that is, one takes the mortgage while the other pays for groceries)
With many joint expenses to pay, this is when a joint account could come in useful and while you are at it, you could get one that maximises the benefits for both of you. For instance, your partner and you could get your individual DBS Multiplier accounts and credit your income into the joint account. This maximises your benefits as the Multiplier account will recognise the combined income and calculate interest based on this amount. You could get even higher interest rates when you buy groceries using a credit card, take a home loan, buy life insurance or invest through POSB/DBS.
There is no one solution that fits all households. 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 to this method is that each person retains some degree of personal space and financial autonomy.
5. Insurance planning
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 their 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.
6. Retirement planning
Some parents tend to prioritise their children’s education needs and wellbeing, but it should not be done at the expense of retirement planning.
Embark on a financial plan early and build multiple income streams that can fund both short-, medium- and long-term needs like retirement. Let the long-time investment horizon and power of compounding work for you. And as couples advance in their career, continue to save and invest especially when they have pay increments and bonuses.
To fund your desired retirement lifestyle, build multiple income flows from a diversified portfolio of savings and investment tools such as stocks, unit trusts, exchange-traded funds, bonds and real estate. Consider using government schemes like the Central Provident Fund (CPF) and the Supplementary Retirement Scheme (SRS) to help grow your nest egg while enjoying tax reliefs. For example, CPF Lifelong Income For the Elderly (CPF LIFE) is a national longevity insurance annuity scheme that provides you with monthly payouts from age of 65 till death so you need not worry about outliving your savings.
At all times, keep diversification in mind as a couple to ensure that your portfolio has a suitable mix of assets to meet your goals and is aligned with your risk profile.
7. Caring for parents
Your partner and you may have different views on financial support for your parents due to the difference in upbringing. It is important to openly communicate with your partner about the expectations that your parents have of you and what you are committed to. Conflicts can arise as one set of parents could demand more from their child than the other and hence, mutual understanding and compromise should be reached by the couple on how they would want to take care of their parents together.
8. Avoid false sense of financial security (for DINKs)
Studies have indicated that couples who have "dual income, no kids", or DINKs, tend to put retirement planning on the back burner until they are in their 40s compared to couples with children who usually start thinking about retirement in their 20s or 30s.
DINKs may be led into a false sense of financial security since both work and earn an income and as such, often perceive that they would enjoy greater financial freedom and more disposable income for travel, luxury, or savings.
However, this also leads DINKs to lag couples with kids when it comes to retirement planning.
To conclude, financial harmony doesn’t mean you have to agree on everything. Having a roadmap to navigate potential disagreements is important and consistency is key. So, schedule a “money date” with your partner, keep the conversation going and focus on the life you are building together. So schedule a “money date” with your partner, keep the conversation going and focus on the life you are building together.
