Mrs. Desai was devastated by the sudden demise of her husband. Otherwise a hale and hearty man, the heart attack was a bolt from the blue. And her distress was being compounded by the realization of the fact that soon the children who had settled abroad would go back to their day to day lives leaving her alone here to fend for herself. She had no clue about monetary matters like where the money had been invested and how to go about managing it. All the time, it was Mr. Desai who had looked after the finances and she had paid little attention if at all to such things.
It’s precisely to avoid the above situation that we tell all our clients to always visit with the spouse so that each knows exactly how, where and how much money is being invested. Plus, since you live together, it is but natural that you would spend together and hence it is important that you budget together in order to arrive at a mutually agreeable financial plan.
How comfortable and happy you and your family will be, at the end of the day, will be in a large part decided by how you manage your money. This is reality and whether you like it or not, you have to face it. From the wedding itself to the holiday post the wedding, getting a car, buying a house, having children, their education, medical emergencies and of course family vacations --- all of these are an integral part of life and each requires prudent allocation of resources. And how effectively you manage to achieve these financial goals will go a long way in determining your happiness quotient. And we haven’t even come to the challenges and curve balls that life will keep throwing at you along the way. You will require all the help and resources at your disposal and the sooner you bring in your partner, the more equipped the both of you will be to plan your life effectively.
Now, the first step in this process is to deal with bank accounts. In a democratic marriage, though the first instinct is to merge your finances together, nonetheless, it is important to have separate accounts too. Of course, have a common account, where you can pool in the money required for household and other common expenses. But it is also equally crucial to have separate joint accounts, one for husband and wife and the other for wife and husband, even if one of them is not assessed to tax. Payment of EMIs, credit card bills and even investments etc. should be from the account of the person who is actually liable to pay for the expense or investment. This will help tremendously, especially while filing your tax return in the new ITR forms that require individual disclosures of high value transactions.
Remember that real estate can be co-owned. Buy the property with both husband and wife having an equal share. The housing loan should also be taken equally and the interest and principal payments for the same should be made separately by each from their respective bank account.
If the above is carried out, each is entitled to an interest deduction of up to Rs. 2 lakh under Sec. 24 and a principal deduction of Rs. 1.5 lakh under Sec. 80C. So totally between the both of you, up to Rs. 7 lakh of income will escape tax!
And just like about other aspects of living together in a marriage, it is necessary to be adjusting and having an open mind about the financial habits of each other. Very often, one spouse feels that he or she is the saver and the other is the spender. But reality is that both spend but on different things. For example, she must be insane to spend so much on a dress and who needs so many pairs of shoes right? But then similarly did you need the latest iPhone? It’s just that what you spend on seems more justifiable than what your spouse does.
The solution to the above problem is budgeting. Setting up a monthly budget is a great way to develop a mutually agreed upon vision of spending and saving habits. How do you go about this? Perhaps by making a small modification to the usual mindset. Normally, what we save out of our income is what we call savings. In other words, Income minus Expenses equal Savings. Now for the almost presumptuous suggestion. How about Income minus Savings equal Expenses? It’s the same equation, but redrawing it is infinitely more efficient as far as our finances are concerned. So starting next month, pre-decide how much you want to save out of your income and the balancing figure should automatically make up your expenses. Take care not to set too ambitious a target, you will end up just strait jacketing yourself and the process will not continue for too long. So start small and make the adjustments as you go along. This strategy while introducing an element of financial discipline at the same time ensures that too much of a pinch is not felt.
The above mentioned principles are equally applicable irrespective of whether both work or whether one is a homemaker. In all probability, she is at home because she is either taking care of old parents or your child or simply making your house into a home. Therefore what she does is as if not more important than your job.
Making decisions about money is part of building a life together. Marriage at all times is about team work, so you need to work together, not in opposition. Set life and financial goals together and spend your money in ways that will bring you closer to achieving those goals. As Robert Dodds has so aptly said, “The goal in a successful marriage is not to think alike, but to think together.” The same is true for your finances.
The authors A.N. and Sandeep Shanbhag are leading financial advisors. They may be contacted at email@example.com