Valentine’s Day is just around the corner, love is in the air, and couples everywhere are preparing their grand romantic gestures to celebrate. While those plans are heartwarming, there’s another way to strengthen your connection with your partner – talking about finances. Granted, talking about money isn’t very romantic, but it’s important. It can be a tricky topic in relationships and is one of the biggest causes of arguments amongst couples.
A lot of young couples tend to avoid talking about finances because they get uncomfortable and think it might cast a negative light on their love. But the truth is that addressing money is vital in any relationship. This Valentine’s Day 2024, let’s take a look at some simple steps you can take to get started on your shared financial planning that can strengthen your relationship.
Step 1: Setting Financial Goals as a Couple
The first step to creating an effective financial plan is goal planning. You won’t achieve anything meaningful if you don’t know where you are going. If you’re looking to turn your financial dreams into reality, you will have to have a heart-to-heart conversation with your partner. Think of it as a brainstorming session where you jot down your financial aspirations and, of course, your partner’s too. Now, don’t be surprised if your lists don’t perfectly match up. It’s normal! You might want to wipe out your debt while your partner’s already debt-free, and they might be dreaming of a lavish getaway or starting a new business. But most of your financial goals, the big ones, will likely overlap. It might be that you want to buy a home together, or maybe you want to invest in your child’s education. These shared dreams are like the glue holding your financial plans together.
Once you’ve got your goals laid out, it’s time to clearly define them. Let’s say you’re envisioning your golden years. What kind of lifestyle would you want? Where would you want to live? Would you like to travel a lot? Chase some hobbies? These kinds of questions will help you envision a lifestyle and make your goal more specific. The job doesn’t end here. Now you have to ensure that your goal is also realistic, measurable, and time-bound. How much would you realistically need to save to live your desired post-retirement life? How long would you have to stay invested? This SMART – Specific, Measurable, Attainable, Realistic, Time-bound process will give your goals a structure and a clear target. It will help in making informed decisions and give you both a clear direction.
Step 2: Creating a Joint Budget for a Shared Financial Vision
How you manage your finances daily has a big effect on your long-term financial health. As a couple, sometimes it can be easy to overspend, and that is one of the biggest problems that a budget can address. A joint budget will give you a framework for tracking your joint income and spending. It will detail your expenses which will allow you to allocate funds wisely and efficiently. To make a realistic budget, divide your expenses into three categories – essential expenses, non-essential expenses, and savings. Your essential expenses include the necessary spending such as rent, food, utility bills, etc. Non-essential expenses include what you spend on hobbies, dates, recreation, etc. The third category is savings, and it’s the one that you have to focus on.
The first thing this framework will reveal is whether or not you are living within your means, that is, your income is covering all your expenses. Next, you have to ensure that you are saving at least 20% of your joint income. Your savings are what will enable you to realise your shared dreams, so make sure to save regularly and adequately. If you are having trouble hitting the 20% mark regularly, your non-essential category will help you identify areas where you can make some cutbacks and make some additional savings. You will find that setting a joint savings goal will be easier to achieve. Sometimes you may find it hard to fulfil your savings obligations, but your partner may be able to cover for you, and vice versa.
Step 3: Communication is Key – Talking Money Matters
Open and honest communication is the foundation of any successful relationship, so of course the same holds true when it comes to money. If you’ve never had an honest heart-to-heart talk with your partner about money, now would be a good time to start. You already know about each other’s financial goals, but knowing about each other’s financial standing is just as important. Talk about your financial mindset, income, spending habits, assets, debts, and savings. You can go deeper by talking about the financial mistakes you may have made in the past, or any success you may have had. Such transparency promotes trust in a relationship, which is incredibly important. It will also prevent misunderstanding and help you know each other better.
Step 4: Building an Emergency Fund for Financial Security
Having a financial safety net is incredibly important, as life’s uncertainties can catch you off guard anytime. A big medical bill or a loss of employment can potentially throw your finances into chaos, and that’s why having some savings tucked away for emergencies is crucial. When the going gets tough, you will have this cushion to fall back on. With an emergency fund, you won’t have to take debt or prematurely liquidate your investments. It will enable you to pay your bills on time and make your regular investment contributions.
A question arises, how to build an emergency fund? Well, because emergencies require urgent action, your fund should be easily accessible. A high-interest savings account can be a good option as it offers liquidity. How much you need to save depends on your financial condition and your lifestyle. There’s no set amount, but rather a general guideline states that couples should have at least three to six months’ worth of living expenses in their emergency fund. Having a contingency gives you peace of mind, as you know you’re financially prepared for life’s challenges.
Step 5: Investing in Your Future Together – Strategies for Young Couples
When you’re young, it’s easy to think that big life milestones are far away. But here’s the thing – time flies, and those financial goals sneak up on you faster than you expect. While saving money is a good start, it’s not enough. You’ve got to stay ahead of inflation and grow your money’s value over time. That’s why you should invest and make your savings work for you. As a young couple you have time on your side, so take full advantage of the magic of compounding interest. Identify suitable investment options that align with your goals, time horizon, and risk tolerance.
Take retirement, for example. There are many options such as Public Provident Fund or New Pension Scheme that you can look into. Since it is a long-term goal you can also look to invest in equity mutual funds. These funds are a bit riskier, but with time on your side, you can bounce back from any short-term losses. So, put your money where it can grow, and regularly review your investments.
Bonus Tip:
- When you are creating your financial goals it’s important to be realistic. Unrealistic goals are hard to achieve and they often lead to disappointment and frustration.
- Similarly, if you make an unrealistic budget by making too many cutbacks to meet your savings goals, you will find it very hard to stick to it. Too many sacrifices will impact your lifestyle negatively, and ultimately may want to abandon the budget. It’s important to strike a balance.
- The conventional way to look at savings is that it is whatever that’s left at the end of the month. That can be an outdated and ineffective way of looking at it. Try to prioritise savings, and spend what’s left after.
- Just like an emergency fund, having insurance can protect you from the financial impact of unexpected situations. Make sure you and your partner have a comprehensive life and health insurance plan.
- Everyone is unique, and chances are that you and your partner do not have the same mindset when it comes to money. Learn about each other’s habits when it comes to spending. Someone might be impulsive, someone too conservative. It’s important to understand and find a middle ground that works for both.
- If you have any debt, start working on creating a repayment plan. The sooner you begin, the more money you will save. Discuss together whether you will tackle the debt jointly or if it will be handled individually. Having this conversation beforehand can make sure there is clarity and mutual agreement on how to manage the responsibility.
- If you are looking to buy a house together, note that you can save a lot of tax by jointly obtaining a home loan.
- Regularly monitor your budget, financial goals, and investments and be flexible to adjust to adjust your financial plan accordingly.
Also Read: What is Long Term Financial Planning? – Step by Step Guide
Real-Life Success Stories: Young Couples Who Nailed Financial Bliss
Let’s look at Priya and Aryan’s story which shows how teamwork made their financial dreams work.
Priya and Aryan had pretty different financial goals. Priya dreamed of travelling the world, while Aryan was more conservative. His focus was on settling down early and buying a house. In the beginning, this difference caused tension, but instead of trying to force each other, they found a compromise. They sat down and made a budget that helped accommodate both goals. Both started working towards buying a house first by saving money, then they planned on travelling to places their budget allowed them. This willingness to compromise didn’t just ease tensions, it brought them closer. It allowed them to experience the best of both worlds. Priya and Aryan’s story tells us that the perfect partner doesn’t have to perfectly match one’s values and dreams.
Common Pitfalls to Avoid in Young Couple Finances
- Young couples often think they have a lot of time to think about retirement. Remember, the sooner you start, the more time your money has to grow.
- Sometimes couples think that talking about money is going to cause necessary strain in the relationship, so they avoid talking about it altogether. Again, it’s important to be open and honest about your finances, and remember it’s not just a one-and-done discussion. Discuss each other’s financial status regularly.
- Young couples also tend to overspend a lot. While it’s good to surprise your partner with expensive gifts, make sure to not live beyond your means. Overspending not only means no savings but also you might fall into debt.
- Staying in line with the last point, young couples often don’t tackle debt effectively. You should not take debt lightly because it has a way of snowballing. Debt can strain your finances and also your relationship.
- Don’t hide things like expensive purchases or debts from your partner. That can be seen as a breach of trust.
- Build an emergency fund. You should be financially prepared for unexpected expenses or loss of income.
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Conclusion:
Finances are an important part of any relationship so don’t shy away from uncomfortable talks and give them the attention they deserve. Through these five steps, you can make a solid foundation to realise your shared dreams. If you are unsure about budgeting or investing, don’t hesitate to seek professional help.
A certified financial planner can help you realise your financial dreams faster and more effectively. He can assess your financial situation and help you make a portfolio that aligns with your risk tolerance, timeline, and financial goals. Remember to also invest time and effort into understanding each other’s financial values and goals. So, this Valentine’s Day, don’t just embrace your partner, but also the financial peace that comes with some solid financial planning!
