How to manage your finances during first job, marriage and child?

With the start of your first job comes a big task of knowing and prioritising your financial goals. To simply put financial goals are your dreams and aspiration which are quantified. E.g. you want to get married or you dream of owning a car. Now if you want to convert this into financial goals, you will have to specify when do you want to marry or which car you want to buy, what will be the cost and by when do you need it.

We have limited sources of income and multiple goals to achieve. Hence these goals need to be prioritised in terms of importance and achievement. To achieve financial goals one needs to save enough for investments. Ideally one should save 40% of the total income which can then be invested to achieve the goals. It is also important to remember that if your goals are SMART, it can be easily attainable.

Specific – marriage, child education, buy a car, time, colour, etc.

Measurable – define the cost or set the budget

Attainable – ensure that the goals are realistic

Relevant – ensure that you prioritise the goal in terms of importance. The unimportant ones can be at the bottom of the list.

Time-based – define the number of months/years within which you wish to realise the goal

Once your goals are set, you should align your investments with some of your important life milestones. After the first job and you have set your asset allocation, the next step for you is to get married. Starting a new life together is certainly a big change for anyone. It is important for the couple to have an open discussion to assess their joint finances and have deeper financial conversations.

Let me take the example of Arjun (28) and Gayatri (27). They both are software professionals and are getting married in another two months. Individually they are earning an annual income in the range of Rs 10-15 lakh. If we look at their investment mix, they do not own any real estate and have their investments majorly in mutual funds and fixed deposits. Arjun is more traditional with his investments while Gayatri chooses to invest more in liquid funds.

It is very essential that Arjun and Gayatri have meaningful conversations on their financial aspects before they enter into matrimony. Here are some aspects, they can consider about managing finance before marriage and a child.

Develop common visions

Like I discussed earlier, to achieve something you should first have a goal set in your mind.

Managing the money as an individual is far more different than managing it with your partner. When you start with your first job, your focus is more on maximising your wealth. There is a significant shift the moment you consider marriage or children.

You need to start looking out for investment options, which are less risky and more liquid to avoid any shortage of finances when in time of need. There needs to be clarity on plans – buying real estate, planning for a family and retirement.

Articulate Your Financial Tendencies

As mentioned in the example above, Arjun and Gayatri are in a very different space considering their investment choices. For starters, it is important that both the partners be on the same page regarding how they plan to move ahead with their finances. They need to understand what will work as a perfect mix for considering their short and long-term goals.

Moreover, before getting married, it should be known whether either of the partners owes any debt. Then, the priority should be to clear or manage the debt first and thereon, allocating the investments.

Planning for a family

Planning for a family should be a well thought out decision if both the partners are working. One of the partners may have to take a career break, which will create a shift in the overall income structure in the family. The new parents should be ready with an emergency corpus. They should also evaluate and buy both health and life insurance, if the need be. When working towards a financial goal with your partner, if your goals are in synergy then there is a higher possibility that you will move towards creating wealth, as well as wellness at a much steadier pace.

Also, remember to review your investments periodically. You may have started investing in a mutual fund as per your financial goals. Your risk capacity and financial profile changes over a period of time, therefore you should align the investment portfolio as per your updated financial situation to get the best result. If needed, take the help of a financial adviser.

Let me conclude by saying that investing is simple – decide your asset allocation and stick to it. Review and rebalance the portfolio periodically.

All the best!

The writer is head of Personal Wealth Advisory, Edelweiss