If you’ve been bumbling along as a singleton, you probably fall somewhere along the scale of living off credit to being financially sussed with solid retirement and financial plans in place for yourself. If you’re living on the edge, marriage and children should shock you out of the financial flat line.
Being prepared for the future isn’t about stockpiling cans of food in your grocery cupboard, but it is about stockpiling money in safe places so you can be sure the grocery cupboard will always be full. It’s important to set up your family finances so that when the future suddenly invades your lounge, you don’t have to panic. A financial plan today can be a financial success tomorrow. Responsible readers of this feature will already have concrete systems in place to ensure their assets are protected in marriage, the new family is going to be financially secure and there will be money tucked away for children and the heap of expenses they bring.
Before getting hitched
It’s easy to get caught up in the whirlwind of wedding preparations and fervour without focusing on the bigger picture: you and your partner have decided to be together (hopefully) forever and will possibly even have children. You will be a unit from here on out. Before the big day, you need to know exactly what your financial situation and assets are to decide what type of marital property system you and your spouse wish to enter. This will play a role in governing finances for the rest of your marriage.
• Marriage in community of property: All assets form one joint estate, giving you each a 50 per cent share. This means both parties will be liable for any debts and, if you get divorced, all assets will be split.
• Ante-nuptial contract (also known as marriage out of community of property): Each partner’s estate is kept completely separate. Parties are liable for their own debts. When opting for an ante-nuptial contract, you’ll need to decide if you want the accrual system to apply.
• Accrual: The accrual system means that once you’re married, any assets acquired are shared. Previous assets will remain in your own name, but any increased difference in these assets after marriage will be shared 50/50. This is important if divorce is on the cards or if one partner dies.
• Trusts: Before getting married you could form a trust or some other type of legal entity to ensure that assets will not be in your own name. This preserves your assets, which will not be part of the marriage and accordingly not subject to the debts of the marriage or any matrimonial property system.
Happily ever after … maybe
After frolicking on a foreign beach and sipping on exotic cocktails during the honeymoon, it’s back to reality and the genuine financial planning has to begin.
“Financial planning includes living within your means by using a budget, creating an emergency fund and providing for the unforeseen, such as death, disability or additional medical expenses,” says Francois Retief, senior manager of legal services at Sanlam Financial Advisers. “Accept that you can’t provide for all unanticipated situations; but proper financial planning will address many and soften the blow of others.”
Once married, you should consider various options such as death and disability cover, medical insurance, short-term insurance and short- and medium-term savings provisions. This is also a good time to draw up a new will. If you haven’t already, look at establishing a pension fund or retirement annuity – it may feel like a long way off, but plan for your future now. You may be one unit (especially if you’re married in community of property), but it might still be worthwhile to keep insurance policies and retirement funds separate. It’s a sad reality that not all marriages last. If you and your spouse part ways, no-one wants to be suddenly stuck without a retirement annuity. Similarly, if your relationship goes the distance, then with both partners receiving annuities there’ll be more money to go around. It’s a good idea to consult a financial adviser to help decide what’s best for you and your darling.
The most important thing is that you make financial decisions together. René Roux, head of Sanlam Liquid, says that leaving finances solely to one partner is a financial planning mistake. “Take joint responsibility, discuss and do your financial planning together as it will affect both of you in the future.”
Before you go off the pill
Sleepless nights and changing nappies aren’t the only shocks you’ll face when having a child (or, if you’re brave, children). “Having children is an expensive exercise,” says René. You can’t leave the planning until the day the baby is born. “The day you decide to become a parent is the day to start financial planning,” she urges.
From the beginning, there are constant expenses with children, from nappies and medical bills to school fees and pocket money. As kids under five spend a lot of time at the doctor, you may find it better to have comprehensive medical cover rather than use savings for these costs. René suggests choosing the best possible medical aid with a savings plan as well as hospital cover.
One of the major expenses you’ll incur with children is their education. There are a few options to assist you in providing this capital:
• Education plan: This allows investing a set amount of money each month for a specified time. You cannot access the funds until the time has lapsed. The lump sum at the end of the period can be used for tertiary education, or something else if your child doesn’t attend university.
• Linked investment product (LISP): This type of investment can be made with a lump sum or monthly contributions and the money is invested in unit trusts. This can grow money for future use for education.
• Interest-bearing savings: You can use this like a savings account for short-term expenses such as school fees, books and uniforms.
When kids enter the picture, you’ll also need to face the reality that you might not always be around or able to provide for them. Consider additional life/disability cover as well as setting up another savings account or trust for your child’s education. Updating wills is also important and parents will need to think about issues such as guardianship.
At the end of the day
Each stage of life as a couple will require financial decisions. It is helpful to make use of a financial planner for all these steps and, as Francois says, “build a long-term relationship” with them. There are many facets to financial planning and taking advice from a professional is an important step in making the right decisions. These decisions will make all the difference to your financial security in the future.