Loading ...Financial Planning for Young Couples
As per census 2011, the demographic profile of India throws up the median age of India’s population as 26.2 years. With almost 30 percent of the population below 15 years of age and another 65 percent between the age group of 15-64 years, it is expected that India shall witness over 200 million marriages in the next two decades. The growing levels of education and a definite trend towards urbanization and nuclear families may witness in the next couple of decades millions of young working couples who would require a more systematic management of their finances.
A young couple in early married state generally has some immediate necessities such as house building. However, beyond the call of necessities, they are usually inclined towards frequent holidaying, lifestyle expenses and discretionary spends. In the process, few major short-term and medium-term goals may get sidetracked apart from obliterating planning need for important long-term goals. A professional financial planner’s approach accommodates a few given things about the lifestyle of the young while encompassing a broad view of future life goals of the young couple.
Financial planning is good for all life stages. However, a good beginning as soon as one starts earning lays the foundation for a smooth transitioning across life stages while achieving financial goals.
Marriage is an ideal beginning to take stock of future financial goals of the family as a unit. The table in the facing page summarizes a young (both or single working) couple’s immediate, medium and long-term goals with suggested strategies from the viewpoint of a professional financial planner: As can be seen from the illustration, a good financial discipline exercised in stage I sets the theme of well-being in the subsequent stages. Amongst a few cardinal rules of financial discipline, especially for the youth, is to avoid large expenses on credit cards beyond the realm of disposable family income.
A debt trap in the early stage of married life blurs the vision of future goals. The protection of income and assets from all contingencies including life is the foremost goal which should be reviewed and ensured at all stages with coverage of important goals in subsequent stages.
As emphasized, the acquisition of house for living should be the top priority.
The goal size itself being large, imposes a discipline on discretionary expenses while creating a long-term appreciating asset which can sustain a major part of post-retirement expenses by way of reverse mortgage of own house.
If there is still surplus income after adequate provision for investment towards major goals, a second house in stage II provides a steady income stream pre and post-retirement apart from healthy capital appreciation and asset diversification in the net worth.
Long-term goals such as retirement and higher education of children may seem distant to begin with for a young couple. If such goals are not addressed adequately for long, they may require a larger outgo in future years, thus either carrying a risk of their under-achievement or a strain on resources for other important mid-term goals. Starting late towards these goals may also entail taking a higher investment risk with limited tenure in sight.
On the other hand, the timely planning for distant goals even with smaller streams of regular investment employs the power of compounding and this usually ensures achievement.
Apart from major goals, the aspiration towards life may differ from one couple to the other. A couple may have some familial responsibilities and financial obligations which require suppression of wishful goals, while the other couple may desire and well achieve the goal of holidays abroad every year. It is advisable to approach a professional for charting out one’s financial plan. The assistance of a certified financial planner or CFPCM practitioner would come handy in evaluating a young couple’s proclivities, financial behavior and financial goals, and prepare a robust financial plan, which should be reviewed periodically thereafter to fix gaps or inconsistencies.
A financial planner, like a family doctor, acts like a trusted advisory support for all major financial decisions besides a reservoir for all financial data.
The views expressed here are personal and do not necessarily represent those of the organization.
RANJEET S. MUDHOLKAR is working with Financial Planning Standards Board India (FPSB India) in the capacity of Principal Advisor and Member-Board of Directors. FPSB India is the sole marks licensing authority for the CFP marks in India, through agreement with U.S.-based FPSB Ltd.
©Entrepreneur July 2011
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