Getting married comes with big responsibilities and many financial obligations. One of the most important factors of a successful marriage is knowing how to manage your money and working together to achieve your financial goals as a couple.
Differing attitudes towards money can pose challenges in a relationship. What seems sensible and prudent to you may seem stingy to him or her. If you are used to lavishing each other with extravagant gifts, you might no longer find this desirable or sensible once you get married and have bills to pay.
Adequate retirement planning and budgeting are important so that you can take care of your own future and financial needs together while continuing to support your dependents. Planning for your retirement not only helps you cope, but also enables your child to break out of the cycle and pursue their own dreams instead of becoming yet another member of the *Sandwich Generation.
To help you build a strong foundation for your family and your future, here are 10 important rules of money management as a couple.
*Sandwich Generation is a generation of people (usually in their 40s onwards) who care for their aging parents while supporting their own children.
Building and Creation of Wealth
1. Understand Your Cashflow
Do you know how to handle your money? The key to being financially secure is not how much you make, but how well you manage it. A good job and a dream income could still be insufficient if you don’t know how to handle your money. As a couple, you need to live within your means. Overspending every month can dramatically impact your ability to save for retirement.
2. Save first and spend later
Most of us were brought up with a spend first, and hopefully, save later attitude. This is because there are essential must pay bills, food and lifestyle expenses to meet first, and we will save if there is any money left. A spend-first-save-later pattern could mean there is nothing left for savings. This is completely backwards and a sure-fire way to keep yourselves in the rat-race living pay cheque to pay cheque. Saving first ensures that both of you save a portion of your income every month and ideally, you should save at least 10% of your income every month. For the rest of your income, use a budget to help you manage your expenses. Start saving. Start paying yourself first.
3. Understand Your Money Values, Needs and Wants
Needs are life’s essentials. These are things you can’t live without, like food or utilities. On the other hand, wants are the things you desire. They could be more expensive (but not necessarily better) substitutes for your needs or just non-essential items, like a new pair of shoes or a handbag to add to your collection. As a guide, you should always prioritise spending on your needs over your wants.
It is normal to want things, and it is not a bad thing. You may want to take a trip around the world with your spouse, get the latest iPhone for yourself, and so on. Whatever you want, you must be realistic and first figure out if you can afford it. Or if you have a goal, work towards it.
Learning to make better choices and to differentiate between wants and needs will help you and your spouse stay out of debt and reach financial freedom soon.
It is good to find out each other’s style of managing and spending money and try to adapt to each other. If your spouse is a spender, do try to agree on some limits. Communicate clearly and honestly. Express your expectations clearly and try to have some common ground.
Avoid impulse spending or borrowing. Do not make large financial commitments on your own or on impulse. Instead, do discuss them with your spouse first.
4. Draw up a budget together – cornerstone habit for building wealth
A budget is a good savings and spending plan. Make extra effort to draw up a joint budget. It can help you and your spouse track how your salaries are being spent and find ways to improve your finances. It is also to manage your savings, income, spending, debt and other liabilities prudently. This will help you both live within your means, meet your basic living expenses and control your money, so that it does not end up controlling you.
The three things to take note when it comes to budget are:
- Income – how much are you getting per month?
- Fixed Expenses – recurring expenses such as car payment, insurance or home mortgages Fixed debts that arise regularly.
- Variable Expenses – discretionary expenses like eating out, entertainment, drinking etc.
Start by cutting as many Fixed Expenses as possible. By and large, fixed expenses dominate majority of your budget. You and your spouse will stand to save the most by asking questions like “Do you really need a car that nice?”, “Is this necessary?” etc.
On the other hand, if you don’t keep your eye on variable expenses, they can quickly balloon into big ticket items by month’s end. Try to budget with your spouse on how much you intend to spend on categories such as eating out, entertainment at the beginning of the month and hold yourself accountable.
The rule of thumb is to allocate your budget into 50-30-20. That is to put 50% of your money to needs (necessities), 30% to wants (lifestyle choices) and non-necessities, and 20% to financial priorities (long-term savings which includes emergency fund, investments for the future and debt payments). Do keep in mind that this budget framework, like any other, is a starting point but it’s not one size fits all.
5. Share expenses and save for common goals
Discuss with your spouse and find a way to share your household expenses and save for your emergency funds and retirement. During your conversation, agree on each person’s contribution; it may be in proportion to the income. For example, you could be servicing the home loan while the other could be paying the bills.
If your goal is to pay off your debts as soon as possible, consider reducing your spending in both the necessities and lifestyle choices categories. Put that extra money in your debt. Once you are debt-free, consider moving towards the 50-30-20 structure.
6. Set goals and work towards them
After setting your financial goals, both of you will take the responsibility to live within your means. You might be a young couple now starting out with promising careers but one day you may consider planning for a family or one of you may stop working when children come along, or to take care of your elderly parents. Expenses will also definitely go up as your family grows. Thus, it’s good to plan and save up early.
Accumulation of Wealth
7. Build up your savings and set up an emergency fund
The emergency fund consists of cash reserves that can sustain up to 12 months of expenses to cover household expenditure including supporting parents and in-laws. Many of the elderly may not have sufficient savings or funds in CPF due to the cost of living during post-war years. In addition, they might not have focused on retirement planning as well as they were preoccupied with earning enough money to survive daily or rather spend on their children’s studies in the hope of giving them better lives.
At the same time, raising a family in Singapore is expensive. Besides catering to the basic needs of raising a child, parents are facing the increasingly exorbitant cost of childcare, tuition and the many extracurricular activities etc.
With the twin financial pressures of supporting both old and young, it’s easy for the sandwich generation like you to neglect your own retirement planning. This means that when you retire, the burden of caring for you might end up getting passed on to your children. You will need, more than ever, to be smart in choosing retirement products to grow your savings, to support yourselves and the lifestyles you and your spouse want to live in your golden years.
8. Identify financial needs and set financial goals
Your needs change over time and so should your financial plan. The first step towards getting your finances in order and plan for the future is a properly constructed financial plan. Speak to a financial advisor to analyse your current financial position, your financial needs and wants, and how you plan to achieve your financial goals. Having the following foundational information will facilitate the analysis:
- Your monthly cashflow (income and expenditure)
- Your assets, your liabilities
- Your financial goals (short term and long term)
- short-term goals (building an emergency fund, paying off debt);
- medium-term goals (paying off your home mortgage, saving your children’s education)
- long-term goals (saving for a financially secure retirement).
You and your spouse need to have a financial needs analysis done regularly, particularly when your circumstances change. The five factors that will independently affect everyone’s financial needs are your wealth, income, health, dependents and goals.
In addition, your financials goals should be specific; measurable; achievable; realistic and timely (SMART)
- Specific: A specific goal should answer questions like: what needs to be accomplished? why do you have this goal?
- Measurable: Quantifying your goals makes it much easier to track progress and know when you’ve reached the finish line. Questions like: how much money will I need to retire early? how much debt remaining will I need to have to consider myself paying off my debts?
- Achievable: Give yourself a reality check: is the goal that you’ve outlined so far actually reasonable? Is it something that you can realistically accomplish?
- Realistic: There should be a real benefit attached to reaching the target. Evaluate why the goal is important to you.
- Timely: Goals cannot stretch forever, they need a deadline. This is important in measuring success and should have a designated timeline to stay on track with.
9. Understand Debts And Manage Expenditure
Realistically, nearly everyone needs to borrow money at some point to achieve their financial goals. Credit cards are a great way to bridge the gap between pay cheques or finance large purchase that you and your spouse can pay off over time. However, when used irresponsibly, credit card can quickly erode your credit and financial health.
The cost of borrowing is typically much higher than a traditional loan. Many come with high annual interest rate charged on borrowed funds, service fees, and penalties for late payments. If you don’t pay your balance off every month, these additional finance charges can quickly grow your existing debt.
Good money habits to adopt:
- Spend within your means. Stay within budget on top of your savings goals.
- Think twice before borrowing money you can’t repay.
- View loans or credit lines as the last resort.
- Do not succumb or get carried away by peer pressure or seemingly harmless social or casual activities.
10. Make Your Money Work Harder For You
Investing is an opportunity to grow your savings so that you can achieve your financial goals, be it for your home, your children’s education or your own retirement. The earlier you start, the better. It is also essential to good money management because it ensures both present and future financial security.
Investing will generally help you to generate better returns than savings in a bank, but it comes with risks that you may lose some or even all of the money invested. Hence, it is advisable to equip yourself and your spouse with the necessary investment knowledge, information and even concepts.
Investing allows you to put your money in vehicles that have the potential to earn strong rates of return. If you don’t invest, you are missing out on opportunities to increase your financial worth. There may be potential of loss but if you invest wisely, the potential to gain is higher than if you never invested.
Reasons to invest:
- Grow your money
- Earn higher returns
- Create an income stream
- Reach financial goals
- Save for retirement
- Achieve financial freedom
How much money do you need to start investing? This is a common question among many of us. This is especially for those who just started their careers, have saved up a bit of money and are now looking for ways to invest and grow it, but are not sure if they have enough saved up to start investing.
Investing is for long term so before you start, you should prepare the following:
- Emergency savings of at least 6x your income
- Requisite insurance plans in place for you and your family
- Manageable debt
Some of the plans to start investing early are:
- Regular Savings Plan (RSP). Start early and begin by investing just $100 a month, then add to that amount as your income grows over the years. That is wealth-building habit that will pay off in the end.
- Monthly investment plan offered by some of the banks and brokers in Singapore. Using this RSP scheme, you can set aside a sum as low as S$100 a month to invest in an Exchange Traded Fund (STI ETF or blue-chip stocks in Singapore)
- Unit trusts with an initial $1,000 (and much lower amounts subsequently, depending on the fund). For some unit trusts, the starting amount is an even lower S$100 if you can commit to regular investments every month.
- For Singaporeans and PRs, you can invest your CPF. Once you have more than $20,000 in your CPF Ordinary Account (OA), that “excess” can be used to invest. Monies in your CPF-Special Account (SA) can also be used for investment, but the threshold is higher, at $40,000.
Before you invest, do make sure that you are aiming for a return that is bigger than the guaranteed CPF interest rates of:
- 5% for your CPF-OA;
- 4% for your CPF-SA; and
- 1% bonus interest on the first S$60,000 in your CPF account
If you’re deciding whether to invest with your CPF-OA or CPF-SA, you should always consider investing from the OA. That is because you earn a lower interest rate of 2.5% in the CPF-OA, i.e. a lower return level to “beat”.
To start investing using your CPF funds, open a CPF investment account with an approved CPF Investment Scheme (CPFIS) agent. You can use this account to invest in stocks, unit trusts, and bonds, among other things. CPF imposes a maximum cap of 35% of your “investible savings” in stocks and 10% for gold. Investible assets refer to whatever the amount is in your CPF-OA plus the amount of CPF you have withdrawn for investment and education.
Getting married, starting a family etc. are all life-changing events for you and your spouse. All these will cause you to deal with the tension of conflicting priorities. But it is always good to keep all communication lines open and honest, work through your priorities and manage your finances and goals as a family. These are the key things you can do while trying to manage family life and juggle work at the same time. It is hard, it requires time and effort, but it is worth it.
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