Double income families are much in vogue today due to rising expenses and inflation. But, insufficient planning often doubles the money management issues associated with double incomes. On the other hand, achievement of financial goals can actually be accelerated if the additional income is properly planned and accounted for.
Plan monthly budget jointly
Chalking out the monthly budget is the first step towards joint money management. Husbands and wives often come from different financial backgrounds and saving habits. But in the new family, both have to converge to common goals and certain common financial practices.
How much can be spent on day-to-day expenses, for luxuries, as financial support for parents and for future goals—all these have to be decided jointly. Individual priorities of both the partners need to be surely considered, but the joint needs of the family need to be demarcated and individual incomes mapped to specific expenditure heads.
Maximum tax benefits through joint loans
As an individual, you can avail tax benefit on home loan up to Rs 1.5 lakh as per Section 80C and Rs. 2 lakh as per Section 24 on self occupied property. But once you apply for a joint home loan, both of you are eligible to claim these benefits separately. As a result, the combined tax benefit increases to Rs 3 lakh under Section 80C and Rs. 4 lakh under Section 24.
However, the ownership and contribution towards the loan have to be calculated judiciously. If both the partners fall into same tax bracket, then the ideal ratio should be 50:50, so that both can claim the tax benefit equally. But if they belong to different tax brackets, the person with higher income can contribute more to avail higher benefits.
Sharing liabilities will also help the partners to be more careful while spending money.
Having common credit card
Taking add-on card in spouse's name comes with a benefit. One can keep an eye over the other and help guard against overspending with it. But if you are judiciously using your cards, separate cards not only give financial freedom, but a higher credit limit too.
But remember, reckless use of cards by any one of the partners can wreck the credit scores of both and can affect the future borrowing attempts of the family—be it a car loan, home loan or an education loan for children.
Though there are pros and cons of having a common credit card, it is admitted that couples should have a joint bank account to manage the household expenses.
Insurance for the couple
In most families, life insurance is taken in the name of husband only. The basic idea is that in the absence of that family member, the others should be able to survive on the insurance claim proceeds. But in a family where both the partners are working, individual cover for both is a must-have, so that the absence of one person will not derail the family's finances.
The sum insured can be calculated based on the income of the partners instead of taking a higher sum insured for husband. For example, if the husband is earning Rs.1 lakh and wife Rs.75,000, the sum insured for husband can be 1.2 crore, and for wife, it can be Rs.90 lakhs.
The idea here is to substitute the individual's income for 10 years.
How to fund for common goals
Certain things in life such as children's upbringing, education and marriage are common responsibilities. Similarly, both partners dream of buying a house. All the common goals including short term and long term should be identified and the couples can jointly contribute to it.
The contribution should be depending upon their respective income. For instance, the person with lesser income can take care of the car loan and other can build a corpus for children's education.
In a family husband earns Rs 1 lakh and wife earns Rs 75000. Below table captures how the family expenses are shared between them.
Here, the husband saves Rs.62500 and wife saves Rs.42500. Wife can plan some systematic investment plans or recurring deposit from her account for their long term financial goals and the rest can be diverted to contingency funds for the family. The husband's savings can be diverted to their short to medium term goals.
While there are no absolute rights or wrongs in money management, making financial decisions unanimously is a tight rope walking for a couple. With the right priorities and some smart moves, this tight rope walk can become a cake walk.