Suresh, 27, works for one of the largest IT companies in the country. He likes to travel and has a passion for photography. Naturally, he allots a bulk of his salary to travelling and buying new photography equipment. Suresh is soon going to get married to Megha, 26, and he realises that things are going to change financially after marriage.
Individual spending habits can wreck the financial well-being of both spouses. Most couples take financial planning seriously only after an emergency strikes. Ideally, marriage should lead to a change in investing behaviour. It also has an impact on tax filings. Before going into the details of investments and taxation after marriage, newlyweds should keep a few points in mind.
Budgeting and Starting Early
The first step towards a secure financial future is to keep an account of your income and expenses. Budgeting helps in tracking expenses and categorising them into essential and non-essential. Couples should cut back on non-essential expenses and then plough the surplus fund into building a savings moat. If both spouses are working, expenses could be shared and invested individually.
In the initial phase of marriage, people mostly focus on the good things in life and financial planning takes a backseat. The essence of investing successfully is to start early in life. Chart out a joint investment plan and bring it into action as early as possible. Though major investments largely remain the same after marriage, the treatment changes.
A lot of things change after marriage, and suddenly you are responsible for two people. The most vital investment is to have proper life insurance . If you have a working spouse, it is better to have two individual life insurance policies. It protects the family against untoward incidents and takes care of financial needs like children’s education and loans. In case you have an existing policy, don’t forget to update the beneficiary details after marriage. Life insurance should be taken at the earliest as premiums are low when you are young. According to the thumb rule, a life cover equal to 10 times your annual income should be taken.
If both spouses are working, they probably have a health cover provided by the employer. However, group policies can sometimes fall short in times of need. A better option would be to take a family floater plan, which will provide greater coverage and will also include children in the future. Investments of up to Rs. 25,000 in health insurance are eligible for deductions under Section 80D of the Income Tax Act, 1961. The rising cost of medical care has, however, pushed up the premiums of health insurance plans . Health insurance expenses often go past Rs. 25,000 in a year. If both spouses are working, health insurance can be bought in a way that both spouses can claim the deduction.
Most couples set aside lump sum amounts as savings but fail to inculcate a habit of saving regularly. Small monthly investments in mutual funds through systematic investment plans can ensure a substantial corpus in a couple of decades. In the long run, equities tend to give the highest returns. At a young age, the risk appetite is also relatively high and investment in a proper mutual fund can be highly rewarding. Regular investments also help in forced savings and couples naturally cut back on avoidable expenses. For instance, regular monthly investments of Rs. 5,000 in an equity scheme can create a corpus of around Rs. 1 crore in over a decade.
Benefits in the taxation of rental income
Getting married can help save tax if you have two houses. According to current tax rules, no tax is payable on a property for self-occupation. However, if you have two houses then you will have to compute a notional rent for the second property and pay tax for it, even if it is empty. If you have an earning spouse, the second property can be transferred in her name and treated as occupied. This will ensure that no tax has to be paid for the second house.