Financial plan for the newly wed

Now that the wedding's over, it's time to open your gifts. A large chunk of it is likely to be in cash. The first impulse after counting all the gift money is to just go ahead and spend it. You had planned to buy a regular 21" TV, now you want to take one with a larger screen or an LCD version.

The options are endless and the desire to 'live it up' enticing. But marriage is a long haul and you can stretch the time your wedding gifts stay with you by investing the cash you have received for the long term. 

A key factor to consider is whether both the partners are working or the new household has to be managed on a single income. The first thing to do is to make a list of expenses (regular as well as one-off) that you expect to incur. You are just beginning to share your life with your partner, so it is advisable to add a buffer to the initial estimates.

While you should retain your individual bank accounts (this is especially necessary from the point of view of convenience in paying tax if both the partners are working), you need to open a new joint bank account and deposit the wedding receipts in it. Settlement of wedding expenses (if you were lucky to get a credit) can be made from this account.

Before you go on that shopping blitz, leave aside two months' expenses in this account. This is to ensure that there is money for paying the flat maintenance charges even after the acquisition of that stunning flat screen. After about three months, you can reduce the buffer in the bank to one month's expenses, but only after making sure that the expense budget is realistic.

You can invest another two months' expenses in a short-term debt mutual fund, which can be encashed at short notice, but will earn better post-tax returns than a bank fixed deposit. A reminder: factor in the expenses on gifts that you will give your well-wishers and friends when they get married.

Now, make a list of things you want to buy. Divide these into items that only cash can buy and things that can be purchased through EMIs of consumer loans. Begin exercising control over your expenses by prioritising the items that will require full cash payment. Remember, a certain amount needs to be paid upfront even when you opt for the EMI route to buy something.

The key to effective financial control is to buy only the absolutely urgent items and postpone the purchase of the rest, even if you have cash to go for everything right away. Stagger the target dates of the postponed items over a six-month period. If you shorten your shopping list, you will be surprised later to see how well you managed without many of the excluded items. You might end up feeling that if bought, they would have just been white elephants hidden in the unexplored recesses of your home.

Start a systematic investment plan for the long term in equity mutual funds with the rest of the money. Ideally, that should be 60-75 per cent of your monthly savings. Before earmarking this amount, keep in mind immediate needs as well as annual expenses such as insurance premiums which could impact your cash flow. And certainly take insurance cover after getting your needs for it reviewed.

You are on your way! Take stock after a year. You can then encash some investments and purchase more items on your wish list. If you review your situation, you will find that not only do you have most of the items you had originally planned to buy with your gift money, but also more assets in terms of investments.

Keep an eye on your financial fitness. We are certain you will have a prosperous married life!

The author is MD of International Money Matters and a Certified Financial Planner. He can be reached at lovaii@internationalmoneymatters.com