FINANCE/COUPLE SPECIAL ........FINANCIAL PLANNING FOR THE NEWLYWEDS

COUPLE SPECIAL FINANCIAL PLANNING FOR THE NEWLYWEDS





RECENTLY MARRIED COUPLES OFTEN DELAY HAVING IN PLACE A JOINT FINANCIAL PLAN, WHICH IN TURN REDUCES THEIR FINAL CORPUS SUBSTANTIALLY

Like most people, newlyweds also need to put in place a financial plan. However, financial planners and advisors point out that this group of people are prone to making some mistakes which if avoided could substantially change their life in the long run.

The most striking fact about newlywed couples is that a majority do not care to have a financial plan in place. They think about a financial plan much later in life, when they have kids and are nearing or above their 40s, financial planners and advisors say.

“Since they (the newlyweds) don't make a financial plan on time, precious time is lost for planning for themselves,“ said Shyam Sekhar, a Chennai-based financial planner and advisor.“Since they do not put in place a financial plan in place at the right time, the final figure is significantly lower than what it could have been if they had one in place soon after they got married,“ Sekhar said.

An example can demonstrate the impact of the delay. Say a couple starts a systematic investment plan (SIP) in an equity mutual fund scheme, puts in Rs 10,000 every month for 15 years at an average annual return of 12%, the total corpus at the end of the term will be nearly Rs 50 lakh. However, if the couple had started the same SIP five years earlier, and contributed the same Rs 10,000 per month at the 12% average annual rate of return, their corpus at the end of the 20year period will be nearly Rs 99 lakh. This can show that a delay of just five years could mean a corpus size that is about Rs 49 lakh less.

This is because the power of compounding kicks is more vigorously during the later years as the duration is extended, financial planners and advisors inform.

There is also a step-down impact of the delay in putting in place a financial plan at the right time. According to Sekhar, if the couple puts in place a financial plan early in their life, they could afford to be more aggressive with their investments, that is take higher levels of risks and invest a higher percentage of their investible corpus in equities.However, if they delay the process of financial planning and hence start investing a little later in their life, they may not be able to take higher amount of risks as much as they could have when they were younger. “The missed opportunity to take higher risks is likely to reduce the final corpus they would be able to have in place,“ Sekhar said.

Another mistake that newly married couples commit is that even after marriage, at least for more years, the financial planning remains at the individual level.That is the husband and the wife each have a financial plan. “They feel that each individual should stand as one, independent as a person and hence such an approach,“ Sekhar said. “They fail to appreciate the merits of a joint financial plan,“ he said.

In such cases, where both are working, usually one of the two persons usually takes care of the finances of running the house while the other has a high level of disposable income. However, since the financial plan is put in place for one of the two, or individually for each person, there is always a chance that the full value of the plan will not be realised. “If both the people combine their financial plans and have a single plan in place, that will bring in clarity, discipline and also lead to the creation of a larger corpus over the long term,“ Sekhar said.

Having a joint plan calls for the couple to discuss and arrive at common financial goals which they can strive to achieve by helping each other. So, financial planners and advisors say, it is important that the couple discuss among themselves their goals in life like buying a house, bringing up children, vacations and holidays, and also their retirement and then work together towards these common goals. Some of the things they should do is agree on a budget for the family, save in a disciplined manner, monitor how their investments are doing and review if they are on track. In case there arises some need for some change in their investment approach, they should discuss and take corrective measures, financial planners and advisors say.

ETW4MAY15