Article by Nipapan Poonsatiensap, CFP®, freelance financial planner
Marriage is often viewed as a goal in itself. Yet wedded life begins many new chapters for husband and wife. Spending a lifetime together takes lots of love, but it also helps to have a sound financial plan. If a couple encounters hardship during their years together, they’ll overcome it more easily if they have a solid financial foundation.
A good plan goes well beyond immediate needs like planning the wedding budget and getting a first home. The plan should cover needs like raising children, building a family business and retirement. Without planning, it will be more difficult to pay for these large expenses.
The first issue to decide when planning is how the couple will share income and expenses, whether completely or in part. Each approach has advantages and disadvantages that should be considered. Second, keep in mind the plan timeframe, dividing it into short-, medium- and long-term. Honesty and openness are most important. Both partners need to speak their minds freely regarding financial issues and never keep secrets from each other. Avoiding problems or hiding information is likely to cause mistrust and lead to quarrels.
Will the couple keep a joint account or separate ones? There are several considerations:
- A joint account gives both husband and wife equal rights in it. The strength of keeping funds jointly is that each partner feels a shared responsibility for managing the family budget. The downside is that ownership of funds can become complicated if the couple ever divorces.
- Separate accounts let each partner earn, own and spend on their own. The advantage is that each can independently manage their own money as they see fit. But the couple needs to have a clearly agreed understanding on responsibility for household expenses such as utilities, groceries and child raising. The weak point of this approach is that each partner may not know enough about the other’s financial condition. If one has a money problem, the other might not be able to help in time.
It’s best to discuss these issues thoroughly and agree on the approach that is best for both partners. Starting with a good mutual understanding and clear agreement can help prevent financial problems in the long term.
Goal-based financial planning
- Short-term goals: Beyond plans to pay for the wedding and first home, a couple should consider how to handle family expenses such as food, household supplies, education of children, recreation and reserve funds for emergencies. It’s also important to agree how much to set aside for savings and who will manage this portion of fund. And don’t forget to plan to invest in non-life insurance.
As for life insurance, the head of the household or chief earner should take out a policy covering a sum that is at least five times the family’s annual spending. Then the family is less likely to be financially constrained if any unexpected incident occurs.
- Medium-term goals: Having a baby is an important medium-term wish for most couples. These days, people get married at an older age than was common in decades past. And they might also put off having a child while building their careers or simply while taking time to decide. Beyond a certain age, however, it can become difficult to get pregnant. Getting medical services to ensure fertility can be costly. With all this in mind, a newlywed couple should make a clear plan for having a child so that they will be financially prepared.
- Long-term goals: As years of marriage become decades, the most important expenses are the education of children and retirement. Often, a couple focus all their attention on their children, spending every baht they earn on them. But it’s important to think about retirement.
Since couples today tend to be older than before when they marry and to wait before having children, it’s possible they will reach retirement age while their kids are still in school or have only recently graduated. That means that, unlike in the past, the kids probably won’t be able to earn enough to support their retired parents. So young couples today need to think seriously about retirement planning.
Here are some other tips for newlyweds who want to optimize their financial planning:
- Plan to maintain an amount of money in a savings account or money market funds that is three to five times the family’s monthly spending.
- The head of household should maintain a life insurance policy covering a sum that is five times the family’s annual spending.
- Plan health insurance by deciding whether existing coverage is sufficient. Which hospital does each partner like to use when sick? How much does that hospital charge for services such as a patient room and medical treatment? If the couple’s existing policy is not enough to cover such expenses, then it makes sense to buy additional coverage.
- Set up an investment portfolio to pay for children’s education. The approach should take into account the couple’s risk tolerance and an appropriate timeframe. If a couple starts planning when a child is born, the investment period is long term and it makes sense to put more money into high-risk assets.
- Establish an investment portfolio for retirement. The asset allocation should be based on the couples’ risk tolerance and expected investment time period. Long-term funds (LTFs) and retirement mutual funds (RMFs) can be included to take advantage of tax incentives.
Using no-nonsense guidelines like these, it’s not so difficult for a new family to save appropriately, invest wisely and meet its needs. Just make the right plan and stick to it until you succeed in achieving the goals. Successful financial planning will help ensure that the marriage is secure and lasting.