Building on dreams
Once the honeymoon is over, couples need to get down to the business of financial planning, writes Chris Davis
Once the initial euphoria of the wedding celebrations begins to subside and the bills for the dress, flowers, photographer and lavish banquet have been settled, many newlyweds find the glow of their physical and emotional compatibility may be dulled somewhat by their financial incompatibility.
Derek Young, chief executive of ipac, a financial planning firm in Hong Kong, believes that when it comes to juggling finances, open and frank discussion is the key to maintaining marital bliss.
'Money can be a major sticking point in many new marriages and a prime cause for marital disharmony,' Mr Young says.
Communicating about money is one of the top challenges for even the most open and articulate couples, he says.
'Before a couple can build a financial foundation that supports each other's needs and dreams, it is necessary to understand what goals are important for each partner and why they are important,' Mr Young says.
He recommends that when starting a new life together, couples should focus on saving for retirement, paying off debt and preparing financially for any children.
'Assuming that one or both partners carry a debit burden into the marriage, married life will get off to a good start if all the debts from past lives are paid off as soon as possible,' Mr Young says.
Start either with debt that has the highest interest rate, usually credit cards, or with accounts that have the lowest balances. 'This way you will feel as if you are making progress,' Mr Young says.
As each debt is paid off, there should be motivation to move on to the next. Even couples who are tackling debt should try to save at least a little for retirement. 'A regular amount of savings invested in funds that builds up over time can accumulate into a significant amount.'
According to Louis Cheng, associate professor at the Hong Kong Polytechnic University School of Accounting and Finance, being besotted with each another and relishing every moment spent together is one thing, but agreeing on a household budget and how much to save, and how to save, can generate entirely different emotions.
Dr Cheng says achieving lasting financial harmony can be one of the most difficult areas of understanding to attain in a marriage. He recommends finding a system that works for both partners. 'Whether it is a matter of sitting down together each month to pay the bills as a team, or maybe one partner is better at handling expenses than the other and prefers to do it alone, find a system that fits both partners' needs,' Dr Cheng says.
He says couples should decide who will be responsible for paying the bills and overseeing the financial tasks. 'One partner might be better at investing and taking care of the long-term goals, while the other might be more adept at running the household budget. 'In many traditional Chinese marriages, if the husband is the breadwinner he typically leaves the running of the household finances to the wife while he makes any investments,' he says.
For newlyweds, retirement may seem a long way off, but according to Phil Neilson, chief executive of The Henley Group, it is never too early to start saving for the golden years. 'Simply put, the longer you accumulate, the more dramatic your wealth increases year by year in the years to come. No matter what you earn as a couple, you must always put your financial future first and save at least 10 per cent. This must become a discipline. Learning to live on less than you earn is a challenge that must be mastered,' Mr Neilson says.
The first step is to sit down together. This is often best done with a third party such as a relative, friend or independent adviser with the objective of discussing what your financial goals and objectives are as well as an assessment of your current financial health.
'Both partners should identify their respective money-related characteristics. For example, are you both spenders, are you both savers, or one of each?' Mr Neilson says. Identify the basics such as how you will accumulate wealth together. How you will manage the wealth that you create? How will you protect your wealth [and your future dependents], and how should your assets be owned?
Mr Neilson says couples should think of insurance and retirement savings as two separate pots of money. When reviewing life insurance, couples should generally purchase term insurance rather than anything that has a savings component. There are exceptions to this, however, usually related to business owners or people who have significant wealth either directly or through their family.
Mr Neilson says it is important to develop a budget. 'Make sure you are aware of what your expenses are and what should be left over each month - after deducting the 10 per cent of income for long-term savings,' he says.
Of the amount left over, ensure that there is an emergency fund to be built up, and savings for the medium term, for example, for annual holidays or up to about two years for new household assets. Also, be aware of the need at all times to have some emergency funds in a bank account in each person's name due to the risk that joint bank accounts will be frozen should one of the couple prematurely pass away.
While the power of love may be said to conquer all, it will certainly not make a great deal of headway with the relevant government authorities if a person passes away without leaving a will. Therefore, Mr Neilson advises writing a will that includes enduring power of attorneys (to be able to delegate authority should either party become incapable of making their own decisions) and guardians for any children that may come along.