Settle The Financial Matters Before Marriage
November 3rd, 2008 by ALVIN SOONG
Settling financial goals and strategies can help prevent conflict later. This is not to say there won’t be a happy-ever-after story and actually to help to create one to prevent future conflicts.
Here is a financial checklist summary for couples:
1. Establishing financial goals
Discuss your goals for the future: whether you want to have children and when; the kind of lifestyle you hope to have; and even when you plan to retire.
2. Savings and spending strategy
Couples should complement their lifestyle ans spending goals. It is especially important to discuss this and deal with any differences in your respective incomes.Think about which expenses you want to keep separate and which you want to share. This will help you draw up your household budget and decide on bill-paying responsibilities.
3. Knowing your combined financial worth
Calculate your combined wealth as a couple so you know your new household’s financial worth. Review any combined debts - for example, mortgages - and calculate how long it may take to repay them. It helps to have an understanding of each other’s financial capacity, which includes the earning capacity as well as all the assets and debts that both may bring into the newly created family. A family cash flow and balance sheet can be developed which will give both of you a full understanding of what you can and cannot afford and what each needs to sacrifice financially in order to achieve whatever you both want.
4. Setting up a fund for emergencies
One of the first things a couple should do is to establish a fund for rainy days. This should amount to six to 12 months of mortgage payments and household running expenses, which can help maintain the family lifestyle while a more permanent solution is found, in case of illness or loss of job.
5. Handling of monthly household expenses
When one partner is more extravagant and the other is more of a saver, the couple must decide how to find a compromise to avoid friction in the marriage. The saver may be the better party to handle budgeting in the household, or be given the job of managing the monthly household expenses.
6. Maintaining separate banking accounts
Being married does not mean that everything needs to be combined. Instead, a couple can consider setting up a joint account for household expenses and any shared expenses, and keep individual savings and investment accounts separate. This way, should anything happen to your other half, you will not be left in dire straits. Instead, you will still have access to your money or emergency funds to tide you over the ‘difficult’ period. Having your own individual accounts also helps to preserve the freedom and personal space that we all require.
7. Deciding on contribution to the joint account
One suggestion is to go by a certain percentage of your individual monthly income. This will allow each individual to feel that he or she is contributing ‘equally’ to the joint account, especially if the couple have different earning abilities. Or you may decide, jointly, that the one who earns a higher income will contribute a larger percentage.
8. Handling increases in earning power
As you progress along in life, one party may start earning more. It is critical that both of you discuss how you should handle such changes without jeopardising your marriage or allowing it to become a point of contention in the future.
9. Planning to buy a house
To achieve this goal, you may wish to ask yourself some of these questions: How much of your pay should you be saving towards the down payment for the house? Where will the savings be held and who will be tasked to grow the savings? How is the mortgage going to be financed - that is, via Central Provident Fund (CPF) savings and cash, and in what proportion? Share this cost together.
10. Handling the investment of the joint savings (More investment preference approach)
The person who is more financially savvy should undertake this role. The person who is good in handling household expenses may not necessarily be good at managing investments. This is because he or she may be a low-risk taker and will tend to take the conservative route and put everything into a fixed deposit account, thus not making your money work harder.
11. Reviewing your existing insurance policies (More risk management approach)
Look at your policies and ask if they are still providing you with the adequate protection after marriage. For example, you may have bought a house which requires financing. In this case, you should consider picking up a mortgage-reducing term assurance plan which protects the surviving spouse by paying up a portion or all of the remaining housing loan, in the event of a partner’s untimely death.
Also, check if you are short of, or if there is overlapping insurance coverage between you and your partner. Add your spouse as your insurance beneficiary.
12. Updating your CPF nomination
You need to re-nominate beneficiaries for your CPF funds as your previous CPF nomination will be revoked upon marriage. If you do not submit a new nomination, your CPF savings will be distributed according to the Intestate Succession Act, which decides who receives your assets should you die. If you do not have any children but one or both of your parents are alive, then your spouse gets half of your assets, while the remainder goes to your parent(s). If you have children, your spouse gets half of your assets, and your children will share the remainder equally.
All these info. came as quite timely as I would be planning for my wedding soon. So it comes rather timely for those who are planning for theirs.
Summarised info partially extracted from Sunday Straits Times 2nd Nov 2008
