Remember all those people who told you money does not buy you happiness? They might be right. But money does pay the bills, buy all the stuff you need, fund the vacations, the education of your children and what have you. People who underestimate the importance of money often pay the price for it (pun intended). It is important to respect money and use it well.
Personal finances should be worked out by everybody for ensuring sustainability in the short run, as well as the long run. And couples particularly need to discuss money with each other on a regular basis, regardless of whether both the partners earn or only one does. Multiple surveys have shown that monetary problems are a major source of marital discord, so it is essential to have a proper financial plan in place. Many couples tend to live from one pay cheque to another and do not have any plan in mind. This is sure to lead to problems. So, sit down with your spouse and draft a plan as soon as possible.
Plan for a family
If you are planning to start a family, it will have a huge impact on your life and your finances. Getting proper financial plans in place is essential. With a growing family, your goals and priorities can change quickly. You will soon face new expenses - diapers, baby food, clothing, new furniture, a nanny. Even your grocery list will inflate. What about your vehicle? You might want a safer, more reliable car. And you might even need a bigger house, now that there are more of you. One of the partners might need to drop out of work. Will you be able to afford it?
It is very important to discuss the additional burden that will be placed on the family finances with your partner. Ideally, you should have this talk before you have the baby. Talk frankly with your spouse about your apprehensions and any ideas you might have to overcome them. Ask your spouse to share his/her ideas and do not be afraid to seek help.
Work out a new budget, write down the additional expenses, and find out ways and means of reducing them. Compare the cost of professional child care against what you would lose in annual income if one parent quit working to stay home. You will also need to plan for the education of the child/children. Discuss long-term savings with your spouse, and invest in an asset class both of you are comfortable with.
Plan for an emergency
Loss of a job, a health emergency, an accident can cause a stable financial situation to change dramatically. Suppose a natural calamity strikes, or your house burns down, or you are robbed, or somebody steals your brand new car. Your regular income may not be enough to see you through a bad patch.
The best way to deal with emergencies is to have a contingency fund. This is of utmost importance, and you and your spouse should definitely discuss it threadbare. Include as many details as you can, and as many scenarios as you can imagine. Remember, an emergency fund needs to be liquid. In other words, it is different from your usual savings. Your savings can be locked up in medium-term and long-term deposits, or invested in stocks and equities, or corporate bonds or treasury bills. But an emergency fund needs to be easily convertible into cash.
Take into account your earning and your spouse's earning. Discuss how much both of you need to put away every month to invest in an emergency fund. If one of you earns more than the other, that partner might have to chip with a bigger slice. Work out the proportion and then stick to it.
Plan for everything else too
Other than children and emergencies, you would definitely want to spend some money on entertainment, new acquisitions, that killer dress, the dream gadget, birthday parties, anniversaries and vacations. The miscellaneous aspects of your life also need financial planning. Do not shy away from talking about the feasibility or otherwise of spending on occasions and acquisitions. It might not always be a pleasant talk, but it is better to have it all out in the open than harbor resentment.
Your financial plan should involve the dreams, goals, resources and responsibilities of the entire family. The success of any financial plan depends on the support, persistence, and dedication of all the members of the family. As your children grow up, include them in your discussions about family finances. This will make them more responsible, and they will get an idea of what they may or may not expect from their parents.
Remember to re-visit your financial plan every now and then. Do not be rigid about it, as you will need to make adjustments every now and then. Trust your spouse, and be frank, but tactful.
In the end, remember, it pays to pay heed to money.
By Rakesh Rachwani
The writer is founder of Compass Financial Solutions. Views expressed by him are his own and do not reflect the newspaper's policy.
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