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Last week in our Lifetime of Financial Planning series, we looked at how financial planning when you take up your first real job can set you on the road to financial security. This week we will examine how young couples who are looking to the future can achieve financial stability by making the right choices when readjusting from living a single life.
The key to adjusting to living life as a couple is communication. This is true of all aspects of your life together and financial planning is no exception. Couples often feel reticent about discussing their financial affairs, as in many cases it has been shown to be an area of discord and a cause of argument. The solution to this is to plan time for a discussion on financial affairs in advance and then for both parties to put all their cards squarely on the table. Life as a couple means sharing and that means the bad as well the good; when it comes to money, disclosure really is the best policy so that you both know where you stand and can make a joint financial plan.
Debt is a shadow which looms over many people. Having committed to one another, young couples need to commit to tackling the problem of debt jointly, regardless of who was originally responsible for running it up. Bad debts, like large outstanding credit card balances, can poison a relationship and are the enemy of sensible financial planning. As a couple, you need to work together to make a decisive plan on how best to tackle and eventually repay your debts. However, you should also be aware that not all debt is unwise. Taking out a mortgage to purchase a property is a decision many couples take, but it is important to work together to ensure that a mortgage is at a level both partners feel comfortable with and that repayments are affordable.
Budgeting is essential if you want to make the most out of your money and enjoy life without feeling guilty about spending. Budgeting should not be thought of as a restriction on spending, but something that allows greater choice. By examining your joint expenditure, you can identify areas where you waste money or overspend. Liberating this money allows more choice on what to spend and what to save.
Setting financial goals is important as it allows young couples to focus on what they really want and work towards them. Goals help to prioritise what is important and what is not. Planning a dream holiday, buying a car; these are good goals to work towards and encourage healthy spending and saving habits.
Talking about savings and making joint plans for the future is a positive thing. Regular savings plans mean that you can put aside money for medium and long term goals. Even a relatively small amount put by every month can quickly build up to a sizeable pot. However, many still delay rolling up their sleeves and actually starting to save. It is a fact of financial planning that the earlier people start saving the better. A young couple without children often has significant sums of disposable income. Saving and investing a proportion of this money for the future can open up a world of possibilities bringing greater financial security and independence.
Retirement is often the last thing on the minds of a young couple, but it is a truism of financial planning that it is never too soon to think about pensions. Putting even a relatively small amount away every year will grow a due to the effects of compound interest. For example, a couple aged 25 who decide to invest just $1,000 each a year in a pension plan, looking to draw the amount down aged 55, will have saved a total of $60,000 but the effect of a compounded return at 7% will have seen their saving pot grow to $317,000. Worth thinking about.
Married couples are often eligible for tax breaks and incentives. Every country has slightly different rules and regulations. Young couples should investigate their options so as to maximise their opportunities for savings on tax.
The financial advantage that is gained by becoming a couple is rarely the first thing on the minds of young people when they first get together. However, by moving under the same roof you can reduce your individual outgoings and by having two incomes, can create a pool of disposable income. By discussing your financial position, you can not only tackle your own debts, but get yourselves into a position of financial strength that will serve you well in the years ahead.
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