"One couple were quarreling every other day, but did not reconsider their engagement, having borrowed heavily from relatives to finance a new house. Another couple could not afford to put food on the table, yet had one child after another. A third had a six-month whirlwind romance that crumbled within six months as the wife wanted to control the purse strings. These three couples had two things in common: they got married in their early 20s and have since split up." – “Money woes can unravel marriages in the early 20s”, Straits Times 9 April 2015.
It is true that very young people tends to be financially less equipped to deal with the demands of marriage. Yet, it does not mean getting married at an older age automatically implies no money woes. If you are going steady or getting married, you may like to avoid some common money issues that a typical married couple would face:
- Going into marriage without even having a stable income. It is important to have a steady income because of the necessity to have a predicable cash flow in order to pay off any debts arising out of the marriage such as wedding loans, study loans and mortgage. In fact, a stable income is necessary to obtain a housing loan. This brings me to the next point…
- Over-committed to the house. The matrimonial house is likely the single most expensive purchase the couple will ever make. The maximum limit for the Mortgage Servicing Ratio (MSR) for purchase of a new HDB flat using a HDB loan is 35% of gross income. But that does not mean you should borrow to the maximum allowed. I suggest a MSR target of 23% because this is the CPF Contribution rate for the Ordinary Account for employees who are 35 years old and below. By using a MSR of 23%, it implies you can use your entire CPF-OA to pay for your mortgage instalments (warning: there will come to a time in the future which you will not be able to use your CPF-OA to service the mortgage instalment. See: Shocked that you cannot use your CPF for housing loan due to Valuation Limit? )
- Related to the housing loan is the mistake to borrow money to the maximum period allowed. I suggest 20 years of time horizon.
- Invested too much of their money. I have seen couples who have to liquidate their investments because they needed money to purchase a property. Unfortunately they often liquidate at a loss because they likely bought their investments when the market was peaking. (It is a common investment mistake for new investors to buy at the peak.) Therefore, make sure you only invest money you don’t need in the near future.
- Both persons are not aware of each other’s finances. It is important to be honest with each other so that both can plan for the future. A number of young couples engaged my financial planning services. It is not surprisingly that it was through financial planning they began to be aware of each other’s finances and fully appreciate their overall financial situation.
- Over-committed to insurances. Although insurance is important, it is a mistake to be over-committed to it. Very often, insurance policies were purchased because of obligation to support ‘a friend’ rather than because of necessity. Over commitment to insurance means you have less money to setup a home.
Money woes can be avoided if both parties are honest with each other. This honesty is necessary so that both of you can plan for the future. Do not let money woes ruin your marriage.
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