By Rebecca Lee
Financial planning for marriage is an area that is sometimes overlooked as couples are caught up in the fun and excitement of courtship. Without proper planning, some couples might end up delaying their marriage as they are unable to afford their desired wedding or home. Sound financial planning will also help couples to exercise prudence in their spending, to avoid being saddled with loans they could not afford, as well as save for the future.
To kick-start your planning, voice out your expectations for the wedding and home and have a discussion with your partner. Once an agreement has been reached, draw up and commit to a savings plan to meet the expenses required. In order to save up for your wedding and spend within your means, Brian Tan, Vice President and Appointed Representative with ipac financial planning, says, “A general rule of thumb is to spend 10% of your income on discretionary spending – which is the category that a wedding falls into. Assuming couples take two years to plan for a wedding”, he says, they could save nearly $20k if they earn an average of about $4k per month each.
“It is also important to work out possible recouping of costs from wedding gifts like ang pows (red packets containing money) or household items people might give you as presents. That said, a wedding is a once-in-a-lifetime celebration, so you can stretch yourself a bit more if you wish to.”
Wilfred Ling, an independent financial adviser from a leading financial advisory firm, shares on CPF's $avvy Blog Corner that it is important for young couples to “have high cash-flow now”. The way to do this would be to minimise expenditure on luxury spending and ad-hoc holidays.
It is best to avoid taking a loan for the wedding, because the personal loan interest can add up to quite a fair bit. For example, if a five-year loan of $30,000 (the cost of an average wedding) is taken up with a bank at 12% interest rate per annum, the couple would have to pay back S$667 per month (ie $40,020 over five years). The total interest payment will be $10,020.
While housing prices are skyrocketing, there are still a couple of ways that couples can scale down their spending for their new homes. First of all, it's advisable to make use of all government-related housing grants. Besides the first-time buyer grant, which is about $30,000 for Singapore citizens and $20,000 for Singapore Permanent Residents marrying citizens, you could also avail of the $40,000 grant by staying near your parents to take a load off the total sum for your home. Instead of springing for five-room flats, which can cost significantly more, you may want to scale down the property size to a modest three-room flat instead.
For furniture, save significantly by heading to warehouse sales within Singapore, or import furniture from overseas if it's a great deal cheaper. Using Craiglist in Singapore to find garage sales can furnish your home at a discount. Electronic items should be purchased during the Comex exhibition or IT fair, or when certain electronic stores are having massive clearance sales.
Applying Brian Tan’s recommendation for financial prudence, if a couple earns $4,000 each per month, their monthly repayment of their home should be about $2,400 in total. For a thirty-year loan, this couple can well afford a home that’s about $864,000 or less, depending on their other financial obligations.
If you plan to have a child, you might want to put your money into a fixed deposits account for 1-2 years to earn some interest before using it for baby expenses. For better returns, you might also wish to consider putting your money in bonds. It is also wise to channel some money into an emergency fund to cope with unforeseen circumstances.
To encourage financial prudence after marriage, Brian Tan also recommends that couples allocate 30% of their income on fixed liabilities (eg: home mortgage and car loan payments), 30% on living costs (ie. food, transport and clothes) and another 30% as savings. The final 10% could be for discretionary spending on items such as holidays, and gifts for friends and families.
It’s never too early to start your financial planning journey. With the correct mindset and knowledge, you would be well on your way to accumulating a nest egg for your wedding and life after marriage.
I Love Children would like to thank Brian Tan, Vice President and Appointed Representative with ipac financial planning, for his professional inputs.