Tying the Knot? Thrash Out the Money Issues First

This is an article by Lorna Tan in the 'Invest' section on The Sunday Times dated 2 November 2008. I personally do not find the article useful except for the last part on CPF nomination. Nevertheless, I shall summarise it here and address some of the points based on my current subjective assessments. I may come back to this post and add on to the list of concerns as and when I thought of any, or simply update on my thoughts on the various issues highlighted.

Establishing financial goals
How many children? How kind of lifestyle? When do you plan to retire?

Children - probably 2 (plus/minus 1)?
Lifestyle - a simple and comfortable lifestyle focusing on basic needs is good enough.
Retirement - no concrete plan for retirement yet.
I think the interest of a fixed deposit with principal amount of $2 million should provide a sufficiently comfortable lifestyle for 2 retirees in current time.

Say, interest rate at 0.875% p.a - This yields interest of $17,500 per year which translates to $1,458.33 per month (Together with CPF savings of, say $300 per month, each person will have an allowance of about $1,000 per month).

Savings and spending strategy
Draw up household budget and decide on bill-paying responsibilities.

Knowing your combined financial worth
Calculate your combined wealth. Develop family cash flow and balance sheet.

Very important!

Setting up a fund for emergencies
About 6 - 12 months of mortgage payment and household running expenses (in case of illness or loss of job).

Say, $1,500 for mortgage payment + $1,000 for household income (without children and allowance for parents) that should roughly be $25,000 in joint-account fixed deposit.

Handling of monthly household expenses
The article advocated allocation of the job to the more conservative party.

Maintaining separate banking accounts
Self-explanatory.

To be managed separately.

Deciding on contribution to the joint account
Percentage of individual's monthly account for equity sake.

Taking disposable income as 100%,
20% for joint account for joint expenses + savings + investment
20% for parents (both sides)

Handling increases in earning power
Form some kind of common understanding or broad agreement so that such situation will not pose a point of contention when arises in the future.

Planning to buy a house
How much of your pay should you be saving towards the down payment for the house? Where will the savings be held? How is the mortgage going to be financed - via CPF and cash and in what proportion?

Preferably, all mortgage to be paid via CPF - that is about 20% - 21% of total gross income of each individual. Early repayment should be considered after setting aside sufficient amount for emergencies and investment.

Edit: 16 Jan 09
Key Factors to Consider for Housing Loans
* Affordability
* Duration of repayment
* Interest rate
* Consequences of non-payment

Handling the investment of the joint savings
The article advocated the more financially savvy person, and not necessarily the same person handling the household expenses as he/she may be too risk adverse.

To be considered only after setting aside sufficient emergency fund. Some options are regular investment in diversified unit trusts, Singapore government bonds, exchange-traded fund, structured deposits and gold-savings account.

Reviewing your existing insurance policies
Add your spouse as your insurance beneficiary. Mortgage-reducing term assurance plan which protects the surviving spouse by paying up a portion or all of the remaining housing loan in the event of a partner's untimely death.

Updating your CPF nomination
CPF nomination will be revoked upon marriage. If you do not submit a new nomination, your CPF savings will be distributed according to the Intestate Succession Act, which decides who receives your assets should you die.

If you do not have any children but one or both of your parents are alive, then your spouse gets half of your assets, while the reminder goes to your parent(s). If you have children, your spouse gets half of your assets, and your children will share the reminder equally.

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Edit: 19 Jan 09

On a separate issue, interesting blog posts on "Budgeting for Baby - The First Year" by Panzer.
Part 1
Part 2
Part 3

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Financial Planning for Your Marriage by Wilfred Ling

http://www.wilfredling.com/content/view/553/9/