Budget buddies

Money can be the binding factor in your marriage if you plan your finances together. Here's how to do it right

husband and wife planning finaces on a laptopTo have and to hold, in sickness and in health, for richer or for poorer…” Is this last vow interfering with what otherwise is a match made in heaven? You are not alone. Money is the number one reason why couples fight.

Though a marriage means sharing life together, when it comes to managing finances, the division of labour is rarely 50-50. Irrespective of the couple’s working status, only one spouse [mostly the husband] usually handles the finances. And the reason need not necessarily be chauvinism. As an investment advisor, I know several couples where the wife is just not interested in money matters. Take Mansi and Purab for example. Purab is an investment banker while Mansi, an architect. When it comes to saving and investing money, Mansi tends to throw her hands up. She complains that she doesn’t understand finance jargon like mutual funds, insurance plans, tax saving, pension and retirement planning. Besides, money matters just bore her to death. Purab has tried to get her to participate in financial planning, but as long as Purab is taking care of it, she’d rather spend the little time she gets away from work with their 5-year-old son. Whereas in Payal and Ashish’s case, while Payal wants to take part in the planning, Ashish doesn’t like it if she even voices her opinions in that regard.

I tell my clients to visit with the spouse, so both know exactly how, where and how much money is invested. When living together, it is natural for couples to spend together and hence important that they budget together in order to arrive at a mutually agreeable financial plan.

From the wedding to the honeymoon, getting a car, buying a house, having children, their education, medical emergencies and family vacations—all of these are an integral part of life and each requires prudent allocation of resources. How effectively we manage to achieve these financial goals goes a long way in determining our happiness quotient. And I haven’t even come to the challenges and curve balls that life will keep throwing at us along the way. We require all the help and resources at our disposal and the sooner we bring in our partners, the more equipped we will be to plan life effectively.

Joint at the bank

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 should be from the account of the person who is actually liable to pay for the expense or investment. This helps tremendously, especially while filing tax returns, in the new ITR [Income Tax Return] form, which requires individual disclosures of high-value transactions.

Together in debt

Real estate can be co-owned and hence both spouses can buy property together. You can also then share the housing loan burden equally. Each of you can pay your share of the interest and principal payments from your separate bank account. This way, both will be entitled to an interest deduction of up to Rs 1.5 lakh under Section 24 and a principal deduction of Rs 1 lakh under Section 80C. Together you will save Rs 5 lakh tax.

Buddies in saving

Just like in other aspects of living together, in dealing with each other’s financial habits too, it is necessary to adjust and keep an open mind. Very often, one spouse feels that he or she is the saver and the other, the spender. In reality both spend, albeit on different things. For instance: she spends a bomb on a dress and who needs so many pairs of shoes? Similarly, does he need so many GBs in his iPod? In fact, does he need that iPod in the first place? Fact is, what we spend on always seems more justifiable than what our spouse spends on.

Budgeting solves this problem. 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 incomes is what we call savings. In other words, Income-Expenses=Savings. Now, for the most presumptuous suggestion: how about Income-Savings=Expenses? It’s the same equation, but redrawing it makes it infinitely more efficient. So starting next month, decide in advance how much you want to save out of your incomes. The balance figure is your expenses. Take care not to set too ambitious a target, you will just straight-jacket yourself and won’t continue for long. Start small and make the adjustments as you go along. This strategy introduces an element of financial discipline while ensuring that you don’t feel much of a pinch.

Partners for life

These principles are equally applicable irrespective of whether both work or whether one is a homemaker. 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 aptly said, “The goal in a successful marriage is not to think alike, but to think together.” The same is true for your finances.

Sandeep Shanbhag
Sandeep Shanbhag, a Mumbai-based Chartered Accountant and Director of Wonderland Consultants, a tax and investment advisory firm in the business for over 20 years. He writes regular columns on investment and tax planning in newspapers and websites such as DNA, moneycontrol.com and rediff.com