• Valentine’s Day - will Money Cause a Rift in your Relationship?
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Valentine’s Day - will Money Cause a Rift in your Relationship?

13 February 2017

Nine steps to saving as a couple

Sue McLennan, Financial Planner, BDO Wealth Advisers

Valentine’s Day, Christmas, Anniversaries, Birthdays, the list of ‘calendar days’ is long. We often get caught up in the hype and feel that due to our busy lives, we need to overcompensate and show our love for eachother through gifts. This can often prove tricky with one person feeling ‘I spent too much’ or ‘I didn’t spend enough’. Could there not be a better way to spend that ‘gift’ money, for the benefit of both of you? Why not save the money you would have spent on an expensive dinner at Valentine’s Day, and put it towards a financial goal, such as a deposit on a house or a new car? Successful saving as a couple has many benefits when you plan. For example, pooling of income and sharing of expenses can reduce costs and facilitate faster growth of investments/assets. However be sure to keep some assets separate – there are tax advantages and this can help in emergencies. This is especially so if one partner comes to the partnership with more assets than the other.

How to save as a couple:

The first step to saving as a couple would be to have something to aim for in a specific timeframe. Know how much capital will be required and agree on how to get to the final destination. A good financial planner will help you through the process and keep you focussed on the ‘journey’ and help to keep you on track.

Step one: detail what your individual dreams and objectives are – this will highlight any inconsistencies. It is vital that a couple work together for financial success. Each partner will bring a history of attitude towards money and savings. If these ‘maps’ directing each partner differ too dramatically it could be likened to using a map of Cape Town to find your way around Durban – a recipe for disaster! Aligning the maps is the basis for good planning as a couple.

Step two: list your individual assets and liabilities at the outset. It is wise to draw up a contract if there is an imbalance in the value of assets an individual brings to a union – a contract can be drawn up even if the couple decides not to marry.

Step three: detail the income generated by each partner from all sources eg. Salary, rental from property etc.

Step four: detail your monthly expenses. This can be frightening if the total figure exceeds the income. Take care, this is a warning signal!

Step five: Calculate what percentage of your income you are saving – the guideline is 15 – 20% for as long as possible in order to benefit from compound growth. Remember to pay yourselves first by investing BEFORE anyone else claims your money.

Step six: Understand what investment options are available for your savings and how you can structure them for flexibility, maximum tax-effectiveness and risk. Calculate how much risk you need to take and what returns above inflation you need to earn to achieve your goals. This can be tricky especially when partners have differing views. Sometimes it is worthwhile splitting investments between individuals for tax reasons and also in the event of death.

Step seven: Work out if you will have extra-ordinary capital requirements along the way such as tertiary education, purchase of a car, deposit for a house

Step eight: Allocate your income and your investments accordingly into short term (emergency fund), medium term and long term.

Step nine: reward yourselves for targets achieved along the way eg. Dinners or a weekend away.

Planning is key in achieving the objectives of both individuals and making sure that a couple is not pulling in different directions as this could derail your plan. A good financial planner acts as a mediator, motivator and coach in the planning process.

Review the plan often to keep it top of mind and to measure if you are achieving the original objectives set for both of you.

Traditionally marriage was a union of two people and in most cases, also their finances, but is this the best way for financial success? It might have been necessary in the past if there were children and one parent did not earn an income in order to raise the children, but this was not always ideal.

Society has changed and in many cases couples do not enter into a formal marriage, with both legal and financial repercussions on the finances of a couple. All the more reason to tackle financial goals together.

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