Financial Planning for Married Couples
As we all know, a married life is a two-person relationship. Based on several perspectives, apart from feelings and emotions expressed towards each other, or a relationship established between you two, financial matters are also another crucial aspect of a married life. This is because, in the end, affection alone may not be enough to sustain your married life, because money is also as necessary a factor as affection is. Ergo, when you step into a new chapter of life with your partner, you need to come up with some common plans, whether they be about incomes, expenses, tax payment, investment goals, savings, or financial plans, in a comprehensive and deliberate manner for the future.
A simple start is that, first, you need to come to an agreement whether which portion of incomes will be individually handled and mutually planned, by setting out from those shared in your common purse. Let’s become clear between both of you whether all the incomes you have earned will go to the common purse for further financial plan; or else, any one of you may want to manage some of your own portion as you have a personal passionate or financial goal to achieve. When coming to this step, in order to avoid “financial infidelity” in the future, you need to look into each other’s preferences through a heart-to-heart talk, to see if you or your partner still wants to manage incomes separately. In some cases, some couples may need to individually manage certain portions of their incomes, and in such case, you two should agree on how the incomes will be allocated. To illustrate, you want the allocation to be based on an equal proportion of the entire income, or just be straightforward whether how much each of you would get so that you can save and allocate the remaining incomes to the common purse in a way that pleases both.
Then, allocate the money you have in your common purse based on simple objectives. Save for the future. For instance, short-term savings for year-end overseas travel, medium-term savings to purchase a new house in the next 3 years; and long-term savings for retirement. Emergency savings. For these savings, they are reserved portions of money that have high liquidity, which can be spent when an emergency happens, e.g. being laid off or in poor health, etc. Living expenses. For this one, you also need to have an intimate talk with your partner in order to be clear whether which expenses can be covered by the common purse, and which will not be. With this talk, it helps mitigate problems when someone needs to pay for something out of his/her own pocket.
And as a result of those given above, the most crucial factor is “being straightforward and clear” in terms of, first, the amount of money to be accumulated, e.g. each partner set aside 30% of their income to the common purse. Therefore, the one who earns a higher income will need to allocate more to the common purse. Second, shared expenses, e.g. public utility fees, daily consumable goods, etc. Last, nature of financial goals. To name a few, 2020’s Japan tour with pocket money of THB 100K, planning for a pregnancy in the next 5 years which leads to newborn and antenatal care fees of around THB 300K, etc. With all these specific categories, you can keep track on your plans smoothly and will never be in despair.
When we have both the clear targets and criteria to adhere to, we do now relatively become aware whether how much money do we need to set aside and how much time do we have to achieve our goals. This will definitely help us to predict whether the set-aside we’ve talked about is sufficient or not. If yes, congratulations! Other things you need to do now are just to strictly follow and regularly check the plans you have in your hands.
However, there might also be the case where the savings are not enough for your needs. If that’s the case, let’s read these three ways that would help. Just only one method or more can successfully lead you to your goals: cutting expenses, enhancing savings, and improving investment returns. For the first two approaches, they seem to be simple, yet they are quite actually tough for many people as well due to several restrictions, e.g. parent care, long-term expenses—house and car loans, no time for part-time jobs, etc. Therefore, if you’re facing those obstacles, you may consider allowing yourself more time to achieve your goals. To put it simply, if, previously, you want to visit Japan at the end of 2020 with pocket money of THB 100K, you may postpone it to 2021 instead, or reduce the pocket money. Moreover, you can choose to go by a low-cost airline instead of a premium one in order to make your goals in line with your cash flow.
For the final approach, which is to enhance the returns, it involves more of financial expertise, including target prioritization and time allocation. The targets will be divided into short-term, medium-term, and long-term; or based on their importance, namely high and low priority. Taking into account the priority of targets, it’s something that helps indicate risk levels, whether to what extent you should take a risk. For example, if a target is highly prioritized, you should not be exposed to a high risk as to make sure that you can eventually and definitely reach the target. Conversely, if the target is not important, you can go for a higher risk, because it’s not a big deal if you miss that target. Moreover, the time frame of each target is also a concern for your risk-taking capacity. If the time frame is short, you should go for a low risk. On the other hand, if there is much time available, you can choose a higher risk in exchange of an opportunity to obtain a huge amount of returns, which is surely greater than that you’d receive if you’re risk averse.
Let’s look at this example. If you want to save and invest your money to follow your dreams after retirement, you may be recommended to invest in assets that contain risks to a certain degree, as the retirement is still distant, e.g. 20-30 years away. Approximately 60-70% of your portfolios may be investments in global stock funds, concurrent with Thai stock markets, of which the historical average returns are 10-14% per annum. Although these stock markets will contribute positive returns in a long run, they pose a risk of loss on a short-term basis due to economic fluctuations which are likely to occur along the way. Moreover, 20-30% of your portfolios can be a long-term fixed income fund which contributes approximately 2-5% returns. One of its pros is that the risk of loss is far lower than that of stock exchanges. Last but not least, approximately 10-15% may be allocated to gold funds in order to diversify the risks posed by the overall investments. And all these lead to 6-8% average returns on a long-term basis, which are better than conventional bank savings to a great extent.
Throughout the time of investments, you need to regularly review the investment results, i.e. 1-2 times per year, in order to adjust investment portions and make them suit the time frame remaining to achieve the targets. One condition is, the less time left for investments, the lower risks you should take. This is to ensure that when the time to use the portion of money has come, your portfolios will have enough values and be subject to the minimum chance of loss. Many of you may think that your savings are not sufficient for an investment; or even those who have enough savings may not be satisfied with under expected returns due to fluctuations of the investment markets. Therefore, they may choose to gradually and consistently save their money, whether on a yearly, quarterly, or monthly basis, together with investing in certain funds, side by side with a credible investment adviser, in order to make sure that, eventually, our goals of savings are definitely not out of reach.
Besides, there is also another tip preferable among several couples, namely tax filing. For married couples, you can choose whether to go for married filing jointly or a single individual. Let’s start by considering taxes to be paid and see if the amount is lower when filed jointly. For example, the husband may earn lower income than his wife, yet he is eligible for more tax deductions, such as dependent care tax credit, while the wife earns higher incomes, but her parents have not yet been eligible to be considered dependents. If filing jointly, the tax to be paid by the wife can be lessened thanks to the eligibility of the husband. In this case, you can seek detailed advice from the Revenue Department in order to completely and accurately file your taxes with all tax incentives properly claimed. An alternative way for all couples to enhance their savings and attain their goals the soonest as possible.
All in all, what’s important is understanding and orderliness both partners have towards their financial plans in order not to ruin them and to successfully achieve the targets set.