Both partners should have an equal say in decision-making process

The month of February has a unique tint to it, and that tint is red! Markets are flooded with heart-shaped paraphernalia and we are bombarded with messages reminding us to plan something special for our partner on Valentine's Day. While roses and chocolates could be one way of expressing your love, the best display, however, is a commitment to build a secured life together.

Money is a significant source of stress in a marriage or any kind of relationship. Couples who fail to have the 'money conversation' often find financial issues creeping into a happy relationship leading to arguments and discontent. Planning a financial roadmap together, hence, becomes important to keep a relationship strong and healthy. Below are a few simple steps you can take to plan your finances with your partner.

Equal partnership

For the joint financial planning exercise to be a success, both partners should have an equal say in the decision-making process. No matter who makes more money, the financial plan should be laid down with a mutual agreement. By taking each other's point-of-view into consideration, you can design a roadmap which supports all your aspirations – both as an individual and as a couple. This approach is a crucial step to win over the commitment of both parties involved in achieving the goal.

Honest 'money talk'

Have a frank and open discussion with your partner about your finances. Be transparent and clearly state your assets and liabilities. Talk about your money habits and your approach to financial planning. Share your dreams and desires - whether you plan to buy a home, have kids or retire early. Discuss whether you would want to combine your finances or maintain them individually. This conversation will form the basis to define your financial goals as a couple and device a blueprint to work towards them.

Draw a plan

Once you have your financial expectations in place, draw a detailed plan. Break down your goals into short term and long term and put an amount against each one of them. This will give you clarity on the amount you need to save and invest regularly to reach your goals. Chalk out a monthly budget. This will help you to save the amount that you decided while keeping your expenses in check. Both partners should feel comfortable with the budget. By sticking to the budget, you can free up requisite resources for savings without running into debts.

Invest wisely

Savings alone are not enough to build financial prosperity. It is crucial that you make your money work for you through smart investments. Defining the time horizon and the amount required helps you in selecting the right instruments to achieve goals within the set timeframe. Options such as liquid/debt instruments and fixed deposits can be considered for short-term needs. Equity, which has historically offered around 15-16% CAGR over a 15-20 year period, is the best investment tool for medium to long-term goals. You must also mutually decide your approach towards investment. If you are an aggressive investor while your partner is a conservative one, you can decide to adopt a balanced investment approach. In such a scenario, you could opt for Systematic Investment Plan route to invest in equity mutual funds as the associated risk is less. Whichever route you prefer, please ensure that you make regular investments. This brings in the much-needed discipline in money management. By starting the process at the earliest, you also make the magic of compounding work for you.

Contingency fund

Life is full of uncertainties. Contingencies such as health emergencies, job loss or repair and renovation to your physical assets can derail your financial plan. Try to build a reserve which will sustain you for at least three months should you not receive any inflows in this duration. Build this fund in addition to your goal-based investments and make it a part of your financial plan. You can look at diverting a certain sum from your salary every month to a recurring deposit which locks in funds for a fixed time frame. You can also invest in short-term debt funds or liquid funds for this purpose to earn higher returns without compromising on liquidity.

Health and life insurance

Do not forget to include adequate health and life insurance in your financial plans. Start early as the premium tends to get higher with age. Insurance offers a cushion in case of unforeseen situations. In the absence of an insurance policy such situation can be a huge drain, exhausting all your savings, and in some cases your emergency fund, which in turn has a cascading effect on the quality of your life.

Annual review

Stick to your investments plans. Review your financial portfolio periodically, keeping your financial goals as the reference checkpoint. Just because you have put in time and effort to do your research and make the plan does not mean that it cannot be amended. Keep it flexible and make amends to your portfolio based on your evolving needs.

The writer is MD & CEO, Axis Securities