Pre-decide how much you will save, then spend

Mrs Pandit was totally devastated by the sudden demise of her husband. Otherwise a hale and hearty man, his heart attack was a bolt from the blue. And her distress was being compounded by the realisation that the children, though with her now, would soon have to go back abroad, to their day-to-day lives, leaving her to fend for herself.

Also, she had no clue about monetary matters — when it came to saving and investing money, she had always depended upon her husband. She had never really understood terms such as mutual funds, insurance plans, tax saving, pension and retirement planning, and money matters just bored her to death.

To be fair, Mr Pandit had tried his level best to get her to participate in the financial planning process, but her attitude had always been that as long as her husband was taking care of it, why should she bother? And today, the mere thought of having to manage finances on her own was perhaps giving her as much stress as the demise of her beloved husband.

It’s precisely to avoid such a situation that I tell all clients to always visit with the spouse so that each knows exactly how, where and how much money is being invested. Plus, since you live together, it is but natural that you would spend together and hence it is important that you budget together in order to arrive at a mutually agreeable financial plan.

How comfortable and happy you and your family will be at the end of the day will in a large part be decided by how you manage your money. This is the reality and whether you like it or not, you have to face it. From the wedding to the holiday post wedding, to getting a car, buying a house, having children, paying for their education, medical emergencies and of course family vacations — each event is an integral part of life and each requires prudent allocation of resources. And how effectively you manage to achieve these financial goals will go a long way in determining your happiness quotient.

And we haven’t even come to the challenges and curve balls that life will keep throwing at you along the way. You will require all the help and resources at your disposal and the sooner you bring in your partner, the more equipped both of you will be to plan your life effectively.

Bank accounts
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, it is equally important to have separate accounts. Of course, have a common account where you can pool in the money required for household and other common expenses.

But it is 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 equated monthly instalments, credit card bills and even investments etc. should be from the account of the person who is actually liable to pay for the expense or investment. This will help tremendously, especially while filing your tax return in the new ITR form which requires individual disclosures of high value transactions.

Buying property
Remember that real estate can be co-owned. Buy the property with both husband and wife having an equal share. The housing loan should also be taken equally and the interest and principal payments for the same should be made separately by each from their respective bank account.

If the above is carried out, each is entitled to an interest deduction of up to Rs1.5 lakh under Section 24 and a principal deduction of `1 lakh under Sec 80C. So between you, up to `5 lakh of income will escape tax.

Expense management
And just like about other aspects of living together in a marriage, it is necessary to be adjusting and having an open mind about the financial habits of each other. Very often, one spouse feels that he or she is the saver and the other is the spender, though the reality may be that both spend, but on different things. For example, he might think she is insane to spend so much on a dress and or have so many pairs of shoes. But then, did he really need the latest Blackberry model or so many GBs in his iPod? It’s just that what you spend on seems more justifiable than what your spouse does.

The solution to the above problem is budgeting. 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.
Typically, what we save out of our income is what we call savings.

The equation is as follows:
Income - Expenses = Savings
Now for the almost presumptuous suggestion:
Income - Savings = Expenses

It’s the same equation, but redrawing it is infinitely more efficient as far as our finances are concerned.

So starting next month, pre-decide how much you want to save out of your income; the rest should make up your expenses. Take care not to set too ambitious a target, or you will end up just strait-jacketing yourself and the process will not continue for too long. Start small and make adjustments as you go along.

To sum
The above principles are equally applicable, irrespective of whether both spouses work or one is a homemaker. In all probability, she is at home because she is either taking care of old parents or your child or simply making your house into a home. Therefore, what she does is as important, if not more, than your job.

Making decisions about money is part of building a life together. Marriage is about team work, so you need to work together. Set life and financial goals together and spend your money in ways that will bring you closer to achieving those goals.

As Robert Dodds so aptly said, “The goal in a successful marriage is not to think alike, but to think together.” That’s true for your finances.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He can be reached at sandeep.shanbhag@gmail.com