Money Management
November 11, 2024
Attaining financial freedom is a goal for most people - having enough investments, savings and cash flow to live a chosen lifestyle for yourself and your family and having enough to live off in retirement.
Some people would rather choose to stay frugal as they maximise savings, while others with stable income streams risk their money in high return investments.
Couples are particularly at an advantage if they are able to effectively pool their resources together towards building wealth. “Two heads are better than one” basically.
This is as opposed to chasing individual goals separately. In this article, we look at the strategies a couple can use to build wealth together.
Building wealth as a couple generally involves the following steps;
Whether you are both formally employed, one is self-employed or you are a single income family, your ability to make money will significantly impact your wealth-building options.
It is very important that you carefully evaluate your income needs, i.e. what you need to cover your expenses, against the actual amount of money you are making to determine how to cover the deficit, or how to make a surplus significant enough to save and invest.
Will your partner need to start working? Is setting up a family business the better idea or are passive sources of income the best way to make money for your family?
As you make money, develop a savings plan and start to stash away part of your income into one of the 7 major places to keep savings including the savings account. Both partners can contribute a percentage of their income monthly to the account or you could choose to live on a single income and save 100% of the other partner's income. Either way, the amount you save must be in line with the financial goals you have set for the family.
Saving and investing will typically work together. As you save money for an emergency, school fees, holiday or to buy a car, plan to buy a house, plot, or own a company.
Most Kenyans will be more willing to consider popular investment ideas such as real estate. It is, however, important to have full understanding of the investment options available to you before making a choice.
You will typically also have to have a range of investment in your portfolio as you build your way up to spread risks and diversify your income streams.
Money conversations in marriage or relationships have often been considered taboo by some societies or individuals. However, breaking these norms as a couple will be significant in your quest to build wealth.
You ought to talk about your income sources and how to grow what you earn every month. Plan and agree on how to use the money, in terms of budget - expenditure, savings, and investment.
You should share more about each partner's money habits, whether either of you is Frugal, Spendthrift, or Tightwad. Talk about how you should handle money, know each partner's debt status and credit scores.
Maintain a level of equality, inclusivity, and transparency in your conversation. Some people are good at planning while others deliver on execution. Delegating such roles could take you to the depth of your wealth-building plan.
Talking about your financial goals, creating a unified family financial plan is an important step in setting yourself up for financial success as a couple.
Also Read: Financial Goals to Set For Your Family
Combining your finances means putting everything, including your expenditure, savings, and investments, together.
Depending on your source of income, you could decide to open a joint bank account. If you are both salaried, you can opt to have a joint salary account where both your monthly earnings are deposited. You could authorise a direct debit to your family savings account from this account.
If you are not open to the idea of opening a joint bank account for your income, you could go for a joint savings account. Here, you agree on a certain percentage each partner should contribute towards savings.
Also Read: Is Opening a Joint Bank Account A Smart Money Move For Spouses?
On expenditure, you could split bills. This also depends on your source of income. If you are both working, you could decide to split 50/50 where each partner contributes an equal amount towards bills. Alternatively, one partner could be responsible for bills like rent and school fees while the other one takes care of food and groceries.
You could agree to live off one income, where one partner pays all the bills and 100% of the other partner’s income goes to savings. Either way, your plan to combine your income should not deny anyone a chance to pursue personal goals.
The main purpose of combining finances is to pool all the resources available and channel them towards your combined goals. After catering to the day-to-day budget from the pool, you have more saved and more to invest.
Emergencies are unexpected expenditures. This could result from losing your job, illness, home or car repair, economic crisis, personal accidents, and even health crises such as the COVID-19 pandemic that destabilised incomes.
Plan to set aside some funds for emergencies - it is recommended to save up an amount equivalent to between three or six-month’s worth of expenses.
You could raise this figure by contributing a certain percentage of your net income e.g. 3% per month and increase the rate every few months until you arrive at the target.
Read Also: How Much Emergency Money Should a Family Have In 2022
It can be generally said that homeownership is a dream for literally everyone. Apart from the obvious pride of being a homeowner, buying or building your own house has numerous benefits for your family’s financial health.
Homeownership, especially via the mortgage route comes with a number tax benefits that include deduction of mortgage interest repayments from your tax returns.
In addition, as you continue paying off your mortgage, you are building equity on the property against which you can take an equity loan to fund another investment opportunity.
Real estate investments also typically appreciate in value over time which can work to your advantage if you eventually want to sell the property.
Perhaps the most attractive reason to have a home is the basic comfort of being free from rent, the financial security a home gives you in times of low income and the stability of life when compared to renting.
That said, there are many arguments against home ownership including the simple fact that it may be cheaper to rent than to own a home as well the phenomenon of ‘dead capital’ represented by homes built upcountry when someone lives in the city.
As a couple, you have to make a determination of what advantages owning a home would have; choose from among taking a mortgage, buying or building, and even building over an extended period before moving in.
As a couple, you should agree and plan your monthly budget to suit your income. If both of you are working or one is self-employed, agree on how much you will be spending, saving, and investing.
Conforming to societal lifestyle expectations can significantly harm your ability to save money and invest . You should be careful not to set a budget that will put your family in an extraneous position in terms of cash flow.
The temptation to go into debt to finance a specific lifestyle that your incomes cannot support may be high especially when a couple interacts with peers who are doing better than them.
Unplanned debt is one of the biggest financial mistakes a couple can make.
Learning is a continuous process. Before you can confidently invest the savings that you have been building up, you must be fully aware of the ups and downs of investment vehicles that you are putting your money in.
Even the simple route of buying land/plotis can get very complicated if one does not understand how due process looks like in the land sector. There is no shortage of fraud stories involving even seemingly legitimate companies. You could also be hoodwinked into buying an otherwise valueless land parcel in the middle of nowhere.
If you are indeed serious about securing your family’s financial future, you have no option but to build your knowledge of investment. You do not really have to be an expert - you can involve a licensed financial planner/adviser.
Health insurance, life insurance and other insurance types that protect your property as well as your ability to make an income have to be part of your financial plan.
The plan too cannot be complete without a children’s education fund (if you are planning on having children, or have some already).
A couple should, ideally, work as one. After infidelity, money issues are found to be the second leading causes of divorce. It is also true that a couple with a unified financial goal stands a much better chance of having a lasting and happy relationship.
Once you have made the decision to be a couple, delaying the money conversation is not such a great idea. It is the next logical step that is a building block to successful wealth building.
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