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How important is financial transparency in a marriage?

How important is financial transparency in a marriage?

Photo courtesy Aayush(GOP) Rawat on Unsplash.

When two individuals decide to get married there is a bond between their respective families for a lifetime. The marriage ceremony is spread over many days but the marriage is solemnized after the bride and the groom complete the seven rounds around the sacred fire called the Saat Pheras. These are the seven vows that the bride and the groom take in front of the sacred fire, which they are expected to fulfill for the rest of their lives.

Similar to the seven vows which the bride and the groom take at the marriage altar, the couple can take certain financial vows to make their marriage a success. There should be open communication in regards to expectations, hopes, and goals in life while keeping egos under check. There are many disputes in a marriage due to financial incompatibility and these can be worked out by the couple by being prudent in their finances. Financial transparency is important in a marriage and the financial vows that a couple can follow are-

  • Emergency Fund-

Once you get married your responsibilities are going to increase in the future. Experts suggest a person have an emergency fund equal to six months of her expenses to deal with difficult financial situations in life. An emergency could be due to natural disasters like floods, earthquakes, hospitalization, or even a job loss. You should have enough funds to pull through these situations without the use of a credit card or having to mortgage your essentials to get a loan.

Sit with your spouse and make a plan. Check your monthly expenses and figure out how much time you will take to save the emergency fund. It could be saved in nine months to even a year. If any extra cash is lying around in your savings bank account, you can even utilize that cash. You can keep the emergency fund in a separate account; otherwise, you might be tempted to spend the fund on other unnecessary household items.

The fund should be placed in such an account that has plenty of liquidity. Investment options like public provident fund, long term fixed deposits can’t be considered for parking the funds as they come with penalties if you withdraw them before a certain period. The funds can be kept in short-term fixed deposits, liquid mutual funds, saving bank accounts, and a small amount can be kept in cash.

  • Joint account with a partner-

Till the marriage both the couples have separate accounts and are used to independent ways of spending money. It can be that one of the partners is used to spending lavishly and the other is a conservative spender. Take some time after marriage to understand the spending habits of the partner before opening a joint account.

Couples can sit down and talk about what they expect and how much independence they will both have with the account. A joint account is good as you don’t have to pool money for the home loans and figure out who pays which bills. All the payments can be taken care of with both partners contributing to the expenses. If something were to happen to your partner then you don’t have to worry about how to access the funds as you would have equal privileges for the account. In the same way, your partner should have complete knowledge about your insurance policies so in any unfortunate event they are able to get money from the insurance companies.

Some couples prefer to keep joint accounts while others like to keep them separate and yet others like to have a combination of both systems. Decide on which one would suit your situation.

  • Prepare a budget. Manage your spending and saving habits-

Preparing a spending plan gives you control over your finances. You will know how much money is coming to your house, where and what you are spending, and how much you are able to save. Having knowledge of your spending and saving habits will help you to plan for your financial goals. A worksheet can be prepared. Subtract the monthly expenses from your take-home pay. A budget will help you know where you can cut the unnecessary expenses and pay off credit card debt or other loans where you are paying high interest.

The whole process can be followed in simple steps. First, add both your and your spouse’s take-home pay and any rental income you are generating. Subtract the expenses like rent, car loan, insurance premium, utility bills, cable TV, and entertainment. Look at other financial responsibilities like paying credit card bills or building an emergency fund and when you would complete them. With the income and expenses now clearly visible, adjust your spending habits so that you are spending less than what you are making and saving enough money. This will enable you to lay out your long-term and short-term goals. Since the circumstances change every few months impacted by the inflation, review the plan and habits every few months.

  • Share long term and short term goals-

For a couple to make a success of their marriage they have to make and work out the long term and short term goals. Short-term goals are the ones that are to be achieved in a short period of time say a year or two, while there are goals that you wish to achieve over your lifetime and have plenty of time to achieve. These are the long-term goals.

Short-term goals include setting up an emergency fund, rent payment, credit card debt payments, travel, purchase of white goods, and home improvements. Long-term goals include paying for a child’s college education, sending them abroad for studies, starting a business, and planning for retirement.

For the short-term goals, you have to keep the money where you can access it easily, like the savings bank account without having to pay any penalty. For the long-term goals, you can invest in instruments paying higher rates of interest like fixed deposits, post office schemes, and mutual funds. For setting the long-term goals think of what you want to achieve in the long term and what you can do right now. Think where you wish to be in 10 years, five years, and a year from now, and write down what you need to do every month to achieve the goals. Prioritize the goals; which means deciding on what is most important right now and focusing on that goal. As you become comfortable, add other goals.

  • Inform your partner about the loans you have taken-

After marriage, it is wise to inform your spouse about all the debts and loans you have. A careful partner would always help you plan the expenses and pay off the costly loans. If you sit down and prepare a budget, you can always plan to retire the costly loans and live within your means till the loans are cleared. This would help both of you to grow together.

  • Discuss and then only give loans to family members or friends-

Sometimes your friend or a family member approaches you for a loan. They may be passing through a bad financial situation and require the money. Just be aware of the history of the person who is asking for the loan. The person may be a regular offender and may not pay back the money on time.

You also have your own financial commitments and need to support your spouse and children. If the loan amount is big and the borrower doesn’t return the money on time you too may land in a bad financial situation, like in case of a job loss. You may not get the money back on time and you may find it difficult to support your family. Don’t be under any obligation and always consult your spouse before giving any money to a family member or friend. If the money is not returned on time it may spoil your relationship with the person concerned. 

  • Teach good money habits to the children-

Children should be taught financial prudence from their childhood days. Teach your children the financial experiences from your life so that they gain valuable insights. Give them pocket money and teach them the value of saving and investing. Open a kid’s bank account and teach them the value of budgeting. Teach them about the discretionary and non-discretionary requirements in life. When they are a little grown-up tell them about successful investing and teach them about the stock market and mutual funds.

Finances are one of the most common causes of concern and stress in a family. Lack of communication aggravates any problem in a family and financial anxieties if left unaddressed can cause big problems. So the best way out is to talk to your spouse regularly about the financial situation once a month or a quarter and review your financial goals. The help of a financial expert can also be enlisted if that helps to achieve your goals.

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