While the young adult, fresh out of school, goes through personal trials and tribulations in proving his capability at work, learning to smile despite the bills that have inevitably arrived because he now has a job and an income, the newlyweds have a different set of obligations to fulfill.
No longer is it an arduous task for just an individual, but a collective effort as a newlywed.
It is typical of you to want to plan for your new life together.
And having met a number of young couples; more often than not, they have not taken the time to set up a family budget.
For the sake of your financial health, I appeal to you to do so as soon as possible, without trying to be too precise at the beginning. It can get discouraging, but take it slow and steady, talk and work things out.
Why financial planning is important, even as newlyweds
Do you intend to have a large family or a small family?
Do you want to buy a house or are you happy to stay with your parents?
Buying a house in Singapore is a very heavy commitment. Not many people are able to afford a house solely with their savings. Chances are you will have to take a loan from the bank and spend a large part of your peak years repaying it.
There is little room for errors.
Next, is purchasing a car high up on your agenda?
Again this decision will determine where a considerable amount of your budget will go to. Planning your finances properly will ensure that you will be able to achieve your financial goals.
What can you do?
A strategy that I recommend to my newlyweds clients is to set up these three accounts in their financial planning.
- Bank Account
- Investment Account
- Insurance Account
Make a guess. Which account do you think is the most crucial aspect of financial planning in Singapore?
I feel that to progress in Singapore, you must eventually focus a significant portion of your resources on investments. However, before doing so, the most important area is actually your bank savings account!
Instead of paying for your cable TV, internet and phone bills, Starbucks or your favorite restaurant the moment you receive your pay cheque, why not pay those who matter most to your financial success?
Yes, I’m referring to you and your spouse!
While most of your peers spend their income and save what’s left, make it a point to save a part of your income first before spending what’s left.
You can do so in a number of ways. My favorite method is to have a separate bank account where I deposit a part of my monthly income into.
Instead of using one bank account for both monthly expenses and savings, open another account where you will deposit a portion of your income into and have no intention of spending. Call it your “Long Term Savings Account”.
A common mistake made by people with only one bank account, is to end up spending the money they have saved previously some time down the road. That is what is known as deferred spending, and rarely contributes to your financial goals.
I would highly encourage you to operate with a high level of discipline, and accumulate as much money as you can and as quickly as possible in your bank savings accounts.
Since growing your bank account is the most vital task at hand, as long as you are comfortable, go ahead and put either your spouse’s or your entire income into it.
When it comes to investments, I generally do not suggest jumping right in until you have a made a decision with regards to your house. Keep accumulating the money in your bank account.
If you intend to start investing right away, I would respectfully suggest you tip toe into it. Begin with something solid of low to moderate risk. Unit Trusts and ETFs are good vehicles you can consider looking at.
As newlyweds, there are still many uncertainties with respect to the usage of your money as you see fit, and you probably will not appreciate seeing your money locked up in a high risk investment.
So look at your risk appetite, and strike an appropriate balance.
What about insurance then?
There are no hard and fast rules here.
While I love the miracle of life insurance, at this juncture however, unless either of you have the added responsibility of being part of your parents’ retirement plan, I see little sense in substantially covering both of you.
This is due to the obvious fact that either could pass on at any time, and without children, thus leaving a massive bonus to the surviving partner.
Just to reiterate, while a massive insurance cheque is welcoming, the money could be used better elsewhere right now, and so it does not warrant the extra dollars you have to submit for the life insurance.
Things could adjust next time, when either could be making more money, and/or when you decide to start a family, one of you might choose to stay home to take care of the children.
I would suggest a cheap convertible term insurance on each person, and advice you to stick to your ‘mandatory’ personal insurance like income protection and hospital cover.
So here you go! Simple tips to help you plan your finances as a newlywed couple. Start planning now so you can reap the rewards in the near future!