There is no one-size-fits-all answer to when couples should start planning their finances together, as it depends on a variety of factors, including their individual financial goals, priorities, and circumstances.
Here we will discuss the best practices a couple in their early 30s with a monthly income of Rs 2 lakh should follow to achieve financial stability.
Objective setting
At any age, the start point for the financial planning process is clearly defining your objective. A couple earning Rs 2 lakh a month and in their early 30s could have objectives related to buying a house, children’s education as well as their retirement. It is important to understand that objectives have to be converted to values and return targets.
a. Child’s education & marriage: While planning for children’s education, important points to note include understanding the current cost of education, add the inflation, apart from inflation, if one is planning for overseas education, then the currency impact also needs to be factored in. This is applicable for setting aside funds for children’s marriage too.
Example, if one needs Rs 20 lakh for marriage today, at an inflation rate of 8% if you are planning for your child’s marriage 25 years later, the corpus needed would be roughly Rs 1.5 crore.
b. Buying a home and car: Two of the most common aspirations a couple has are buying a home and car. Here again the same rule applies. Let us say that one is looking at buying a car 3 years later, the current cost of buying a car could be Rs 10 lakh. At an inflation rate of 7%, the same car would cost around Rs 12.5 lakh, three years later.
c. Retirement: If a couple wants to ensure a comfortable retirement, they need to start planning and saving as early as possible. By working together, they can make the most of their combined resources and achieve their retirement goals easily.
Once the objective / goal is numerically defined, it is important to set a target rate of return. Let’s say one targets a 12% per annum rate of return, then to achieve the above goals, the couple would need to invest roughly Rs 75,000 per month as can be seen in table below:
| How much you will need to save for your goals | ||||||
| Goal | Car | Home | Education | Marriage | Retirement | Total |
| SIP | Rs 10000 | Rs 31000 | Rs 21000 | Rs 4300 | Rs 8500 | Rs 74800 |
| Time (in years) | 3 | 15 | 15 | 30 | 30 | — |
| Rate | 12% | 12% | 12% | 12% | 12% | 12% |
| Corpus (In Cr) | Rs 0.04* | Rs 1.5 | Rs 1 | Rs 1.5 | Rs 3 | — |
*We have considered only down payment
Have a strategy in place
The next step is to understand the right mix of asset classes and products that can help you achieve the objectives set.
For example, to achieve 12% return target, the below asset mix is recommended:
| Asset mix | |||
| Equity | Debt | Average return expectation | Average risk (std dev) |
| 70% | 30% | 12% | 9% |
Once the asset mix is decided, have the right mix of products in your portfolio. Key point to note here is to have products that have low correlation with each other and can help minimise investment risk.
So, when investing in equity, equity mutual funds is a better option than stocks as it provides the benefit of professional management and diversification. When deciding mutual fund schemes, it is important to have a good blend of large cap, mid cap and small caps in the portfolio as well as different investment styles like growth and value themese.
Review your portfolio on regular basis
You must review your portfolio at regular intervals to ensure it is going in the direction towards your targeted return. Regular review will ensure that in case you need to take timely corrective measure if required. This may arise due to changing market environment or changes in objectives required.
Don’t not miss out on insurance
Have a good term life insurance policy and a health insurance cover in place that can come handy in case of unforeseen events.
For millennials in their 30s, it is the best time to start their financial planning. By this age, most of them have established careers and may be starting families, which means that their financial priorities and responsibilities are increasing. Financial planning is essential in ensuring that their hard-earned money is put to good use and helps them achieve their life goals, both short-term and long-term.
(The author is Director & Head – Product & Research, Anand Rathi Wealth.)