Marriage and Financial Planning as you start your family July 26, 2022
Consider this article a checklist on what we would consider to be the best strategies to get you financially prepared for the next chapter in your life.
In reality, it is quite unlikely that two individuals are so perfect for each other that they agree on everything.
The first possible point of friction is usually different spending habits. Conflicts tend to occur when one party is a spendthrift and the other is frugal.
A good solution is to have a mutually acceptable spending pattern or implement a budget; discussing cash versus credit and how the both of you can accomplish your financial and retirement goals while still being able to afford the things you desire.
Secondly, a couple should decide if they should have joint accounts or maintain separate ones. There are both pros and cons in either; with joint accounts, there is transparency but it also carries the risk of one party draining the account.
Alternatively, a couple could decide to have both joint and separate accounts. An individual account can be used to track your own spending, while the joint account can be used for household savings and spending.
Lastly, a couple should decide who pays the bills. In most circumstances, payment responsibilities are split between spouses but there are instances where one spouse handles all the finances. One spouse may cover the day to day living expenses while fixed expenses such as mortgage and automobile payments may be covered by the other. It is beneficial to have both spouses involved in the financial decisions, rather than one spouse handling everything1.
Draw up a budget together
A couple should also work out their joint monthly incomes and set aside a fixed amount of savings every month. For this to happen, we recommend a budget allocation.
|Take-Home Income % (after deducting CPF contributions)||Allocation||Details|
|50%||Necessities||Groceries, utility bills, insurance premiums, home loan repayments, children’s school fees, healthcare, transport, home and vehicle maintenance|
|20%||Entertainment, shopping and other items||–|
|30%||Long-term savings and investments||Emergency savings (10%)Insurance (10%)Investments (10%)|
From here, you can make a list of your individual and joint monthly expenses. Monitor your expenses and ensure that they do not exceed the budget you have allocated for each category.
The difficulty is in trying to maintain that final category – long-term savings and investments. Normally, couples cover the first two categories comfortably every month but discover that there is not much funds left for saving. We recommend evaluating your budget/spending in order to accommodate any necessary adjustments.
Emergency savings should be deposited into a bank account specifically for long-term savings. Most importantly, this money should not be used except for unexpected or unavoidable expenses such as medical emergencies or to tide over a period of unemployment. An ideal sum to set aside would be at least 6 months’ worth of your typical monthly income. For individuals with steady income, 3 months’ worth of their monthly salary should suffice.
Working class individuals should first cover themselves with medical and life insurance. Once they’ve got that covered, they can consider other insurance plans such as personal accident or critical illness. If you are new to buying insurance, head over to https://insurance.poems.com.sg/ to find out more.
Investments allow your money to grow over time. Often, people delay investing because of a mentality that they do not have enough funds to consistently set aside. The reality, however, is that when it comes to investing, the earlier you start the better, regardless of the amount. This is in relation to compound interest which grows the longer your money stays invested. So, investing for retirement and other medium-to long-term financial goals is a much better strategy than keeping your additional funds stored in a bank2. To learn more about trading and investment opportunities, visit https://www.poems.com.sg/
Key factors to consider for first-time home buyers
Housing is another issue that young couples grapple with. Regardless of the property type that you’re looking at, there are a few practical monetary considerations to make. This can be broken down to two sections – immediate costs and future costs. Immediate costs include your home loan for HDB flats or private residence (HDB loan/bank loan) and your initial down payment. Normally, the down payment is the biggest financial concern for first-time home buyers, and is dependent on the type of loan you take. HDB loans entail a 15% down payment, so for a regular S$500,000 loan, couples can expect a down payment of S$75,000. The good news is that this amount can be covered by CPF or cash.
The next thing to evaluate is your future costs. This involves servicing your home loan, which is the monthly repayment on your mortgage. To put this into perspective, a couple buying a S$500,000 HDB flat via a 25-year bank loan can expect to pay about S$1,572 to S$1,683 a month. For Singaporean couples, this sum can come from their CPF Ordinary Account.
An essential tip, you would save more money by applying for the maximum loan period available. Setting aside your desire to complete your loan payments quickly, partial repayments actually allow you to save more money than taking on a shorter loan tenure3.
It is also important to take note that you will need funds to renovate your new home, furnish it and purchase electronics and appliances.
Once you are done considering the immediate and future costs of buying a home, you should use the table you have drawn up for your joint monthly incomes. Referring back to Table 1, determine your budget allocation for utilities, groceries, home maintenance, property tax, home and fire insurance premiums and other expenses.
Preparing essentials for a Newborn
In the next phase of life, you may worry about being financially prepared for children. But fret not young couples, much like how you have moved things around to accommodate the 50-20-30 rule of budgeting, planning for a newborn only requires you to review your finances again and make some adjustments to your expenses. Once you are at the stage of welcoming a new addition to the family, it would best to draw up a fresh budget for the household to accommodate new expenses for your child.
Parents-to-be should be prepared for expenses such as ultrasound scans, pre-natal consultations, blood tests and nutritional supplements. Once the baby is born, on a monthly basis, items such as milk, diapers, bottles and clothes will become necessities.
Most importantly, they should not miss out on the following government support and schemes:
|Medisave Maternity Package||Medisave Grant for Newborns|
|Medisave for Assisted Conception Procedures||Foreign Domestic Worker Levy Concession|
|Government Co-Funding Scheme for Assisted Reproduction Technology and Intra-Uterine Insemination Procedures at Public Hospitals||Subsidies for Centre-Based Infant Care & Child Care|
|Baby Bonus Cash Gift and Child Development Account||Kindergarten Fee Assistance Scheme|
|Tax Reliefs and Rebate for Parents|
There may be a lot to comprehend at one go. To make things easier, head over to https://www.phillip.com.sg/sg/financefit/ for a financial health evaluation to better prepare yourself for the future!
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About the author
Shamir Thair is a Content and Community Executive with POEMS Marketing.