Top 5 financial tips for newly married couples

Marriage is truly a roller coaster – As you both get ready to start this journey full of laughter and togetherness, remember there will be highs as well as lows, and being prepared and staying together is what will help you tide over the bad times and cherish the good times together.

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Very often, in the excitement of getting married, followed by the buzz of discovering your new life together to the humdrum of routine setting in, couples overlook the importance of talking finance. Of course, not a very romantic topic to discuss when you are getting married, albeit an important one – on which your entire future hinges in a way.

Last week we discussed top financial mistakes couples make. Today, we bring to you 5 financial tips for newly married couples to ensure your marriage has a perfect start, in every way:

Do the Talk – This is the best tip for newly weds – talk it out. It is important to discuss finances before you tie the knot. Most probably you both have independent income and would now be spending together for a lifetime. Talk about joining your finances, savings, assets, debts and whether to have joint or separate bank accounts.

Plan your life goals, jointly – Till now you were planning for your individual wants, but now you have to plan your future together. From that coveted foreign vacation to buying your dream car or your family home, you both are in it together – so, plan together and work towards achieving your financial goals in sync.

Save for the future – Now that you know your financial goals, prepare a road map to achieve them. Divide your goals into long term, medium term and short term goals and divide your salary to start saving in a planned manner. It helps to prepare a household budget to curb extra expenditure. Remember, you may be having two incomes now and can afford to spend more, but keep in mind future circumstances that may lead to loss of earnings for one of you temporarily. Save for the rainy day!

Insure yourself – As you start your new life together, it is more important than ever to insure yourself with a basic term plan to ensure your spouse and remaining family is provided for in case of any unforeseen circumstance. Also, make sure you take health insurance with accident cover to make good any cost of treatment up or accidental loss of income.

Invest wisely – Marriage is all about investment – investing your time, emotions, faith and even money wisely will lead to a happier future together. Saving alone is not enough. It is important to invest your savings wisely to meet your financial goals in a timely fashion. Another important aspect that many young couples overlook is investing for their retirement. It may seem far, but investing now will ensure happy golden years for you in the future.

Get in touch with a seasoned financial advisor such as Dr. Celso at Navemarg to get a headstart on your financial journey as a couple.

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5 common financial mistakes couples make

In a world where money buys almost everything, it may not buy happiness but definitely plays an important role in determining the ‘happy factor’ of a couple or a family. A rock solid marriage is built on love, trust, respect and mutual financial planning. Yes, open and honest financial discussion and mutual financial planning are very important ingredients for a marriage to be successful.

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Culturally, couples are advised to be completely honest with each other and in a modern and practical twist, this honesty must also include the finances of each partner including income, assets, savings, investments and even debts incurred before or after marriage. How this helps is simple – you both decide on common goals and work towards achieving them in tandem – financially and otherwise.

So as you embark on this beautiful journey called marriage, here are 5 common financial mistakes couples often make and should avoid:

Not discussing finances before marriage – Marriage is not just about romantic pillow talk, it is about much more than that. Couples are usually so busy preparing for the wedding that they forget to discuss money matters – something that will really matter once they get together! Read here to learn the importance of money talk before marriage.

Being dishonest – Well, of course marriages are built on trust, and complete honesty about your finances with each other is a must. Assets, investments, savings and even debts – bring it all out in the open so that you can plan your future after assessing your present situation practically.

My debt and your debt – Don’t fall into the trap of ‘mine and thine’. It may seem easy and more practical to ask your soon to be better half to pay off their debts quickly and not burden your marriage with these debts, but it may not always work. A better way is to ensure that your partner understands the value of being debt free and works together with you to chart a way towards financial freedom.

Not setting financial goals – A healthy marriage is between two equals who put their heads and hearts together and share common future goals and vision. It is important that both of you sit down and plan your short term, medium term and long term goals so that you can start saving accordingly. Once you have an end in mind, you will soon find the means to maximizing your savings and investing them wisely in high yielding instruments helping you meet your life goals in a timely fashion. Create a budget and contact an experienced financial advisor, such as Dr. Celso at Navemarg, who will help you choose investment products in line with your future aspirations, current financial situation and appetite for risk.

Not communicating – When you stop speaking, you stop being. Same is true for your marriage as well as your financial roadmap together. Never stop communicating. From reviewing your budget periodically to discussing your aspirations, financial goals investments regularly, don’t stop talking and communicating with each other, finances or otherwise.

The journey of wealth creation is one that couples must take together, hand in hand, guided by sound advice to ensure they are treading the right path in the world of investments. Get in touch with Dr. Celso to take your financial planning as a couple one step ahead.

Planning finances as a couple

Couple Financial Discussions

Couples tying the knot have so much going on – from wedding preparations to looking their best to attending guests – there is just so much action as two dreamy eyed individuals decide to start a life together that very often talks about finances are just shrugged under the carpet.

However, having the money talk when you decide to walk down the aisle together can ensure a healthy and happy marriage and a secure financial future. Different people have different ideas about money and when you decide to spend your life with someone, it is important to share common financial goals and ideas to ensure a smooth journey ahead.

Talk the talk

 There is no time better than now to discuss finances with each other. Honesty is the foundation of any relationship and it is time to let the cat out of the bag – does any member of the couple have any debts or assets or savings the other doesn’t know about? Do both of you share a common financial vision?

It doesn’t matter whether one of you earns or both, marriage is between two equal partners and you both are responsible towards securing your future equally. Being a homemaker doesn’t mean you don’t have a say in the finances. Once you both have lain your hearts and coffers out open, it is time to discuss a financial roadmap for the future.

Common financial goals – Set common financial goals as a couple to set your priorities right, right from the start… be it a holiday or buying a car or buying your own home, decide what you both want and work towards it together.

Clearing out debts – It doesn’t matter if any one of you incurred some debts before marriage if you understand the importance of being debt free as soon as possible. Do not get into the blame game and strive towards minimizing debts especially high interest credit card debts.

Create a budget – Creating a budget (and sticking to it) is another important step you need to take as a couple. Differentiate needs from wants and create a budget that is realistic but allows you to save for your financial goals.

Communicate – Communication is the key to a successful marriage as well as successful financial planning. Throughout your married life, regularly discuss finances, review your financial situation and budget and grow your wealth together.

Invest wisely – While it is important to budget and save money, it is even more important to invest your savings wisely to reap maximum returns. Divide your future goals into short term (taking a holiday), mid term (buying a car) and long term (education for kids and retirement planning) and invest your money accordingly to ensure all your goals are met in time.

It is a good idea to consult a financial adviser to help you plan your financial future as a couple, as an expert can guide you towards the right investment vehicles to meet your goals. Dr. Celso at Navemarg has been consulting young and old couples helping them make informed choices about their financial future. Schedule an appointment now to set forth on the road to riches.

Debt Funds – What’s that?

Debt funds are low risk investment options for investors who do not want to invest in the highly volatile equity market but seek better returns than traditional investment options such as fixed deposits.

Debt funds are a class of mutual funds investing in fixed income securities such as bonds (short term, medium term or long term), bank certificates, PSU bonds and treasury bills. There are essentially two types of debt funds:

  1. Liquid or Money Market Funds – Funds with major money allocation in short-term debt instruments such as term deposits, certificate of deposits, commercial papers and treasury bills.
  2. Fixed Income Funds – These are the funds with major monetary allocation in government and corporate debts with fixed returns.

Looking for secured income with better returns?

For investors looking for fixed income, fixed deposits seem to be the golden standard. However, investing in debt funds can provide far superior returns and poses minimal risk especially for long term investors. In fact, debt funds tend to gain from falling interest rates in the market and give better returns over longer periods of time and are highly liquid.

From a taxation point of view, debt funds are taxed in the following two ways:

Short Term Capital Gains Tax (STCGT): Debt fund units held for 3 years or less

The STCGT for debt funds is as per individual’s tax bracket.

Long Term Capital Gains Tax (LTCGT): Debt fund units held for more than 3 years

The LTCGT for debt funds is 20% (with indexation benefit)

To illustrate:

Say, you purchased 1000 units @ INR 10 per unit in 2013-14 = INR 10000

Sold 1000 units @ 15 per unit in 2015 -16 = INR 15000

Profit on sale is INR 5000.

Now, if your investment was short term (less than 3 years), then you will be taxed as per your tax bracket.

But if your investment was long term then you have to pay 20% LTCGT on your profit. However, you may take the indexation benefit by using the following formula:

Profit = Sale price – Indexed Cost of Acquisition

Indexed Cost of Acquisition:

                 Purchase Price X Cost inflation index of the year of sale

                                                   Cost inflation index of the year of purchase

So, the effective Indexed Cost of Acquisition would be

 Indexed Cost of Acquisition = (10000 X 1081 / 939) = INR 11512.24

 Profit = 15000 – 11512.24 = 3487.76

Tax Liability (LTCGT) = 20% of 3487.76 = INR 697.55

Now, for the same profit earned under STCGT for an individual in the 20% tax bracket – the tax liability would be INR 5000 X 20% = INR 1000

Hence, it is wise to hold on to your debt funds for a period of more than three years.

Traditional Fixed Deposits’ interest gains are clubbed to the gross Income and taxed as per the individual’s slab. Also, tax saving fixed deposits should not be confused with tax-free interest gains on fixed term deposits. In case of tax saving fixed deposits, the TDS is deducted by the bank each year.

Why Debt Funds are a better investment vehicle?

Debt Fund (STCGT) Vs. Fixed Deposits (FDs)

 In both cases, you pay interest on your returns as per your tax bracket. However, unlike FDs, your debt fund is likely to make more money even as the interest rates fall down. Especially, if you invest in liquid funds for less than six months, you are likely to get better return than the FD.

Debt Fund (LTCGT) Vs. Fixed Deposits (FDs)

Although, for an average tax payer, 20% slab rate is on a higher side, but this is well compensated by the indexation benefit debt fund investors who pay LTCGT can avail.

Consider that the return from a FD held for 4 years is same as the return from a Debt Fund held for the same time. On maturity / redemption, however, the pay outs will differ significantly. This is due to the simple reason that on your FD, you will pay the tax on your entire interest earning, while in a long term debt fund investment, your profits will be adjusted of the inflation, making the taxable amount lower and the effective return higher.

Few things to know about debt funds before investing:

Market-linked returns – As much as debt funds seem safe, the returns are market-linked and debt funds may also lead to losses. Choose well performing funds after careful research to get good returns in your investment.

No TDS – Debt funds are not taxed at source, unlike fixed deposits that are taxed at 10% on source, every single year!

In case of dividends earned by your liquid fund, as an investor you are not liable to any tax, however, the fund is liable to pay a dividend distribution tax of around 28.3% before distributing the dividends to its investors.

SeminarsCapital Gains tax – Returns from debt funds that have been locked in for 3 years are treated as capital gains and taxed at 20% post indexation. An exit load may be involved if you decide to withdraw your investment before the agreed period.

It is possible to leverage the benefit of equity and debt funds together by investing your lump sum in a debt fund. Use money in the debt fund to invest monthly in a well performing equity fund through SIP to get the maximum bang for your bucks. As we always stress, SIPs are a great way of ensuring disciplined savings and building your corpus. Start saving now to reap benefits later. Dr.Celso at NaveMarg can guide you through your financial journey.