Ten steps for young couples to help them lead a financially stable life ::ET

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With high disposable incomes, fewer liabilities and time on their side, young working couples have a great opportunity to build wealth. Here are a few tips for young couples to help them make wise choices:

Discuss finances jointly

It's important for both partners to be on the same page when it comes to money matters. One needs to keep the other informed about insurance policies, mutual funds and other investments. Ensure you assign your spouse as nominee in all investments.

Avoid splurging

With two incomes and enough disposable money, one might be tempted to buy the latest gadget or upgrade to a bigger car, but do not be impulsive. Buy only what you actually need and can afford. Buy a car that fits your budget. Your car loan EMI should not exceed 10% of your monthly net takehome pay. Ensure that you have made your savings before you spend your salary

Don't ignore retirement

It's easy to lose track of retirement planning when you are young. Put away at least 10% of your income for retirement savings. Go for equity funds because you have time on your side. The ultra cautious can go for the PPF, though the returns will not be spectacular

Set up an emergency fund

Always be financially prepared for emergencies. Have at least 3-6 months' expenses kept aside as an emergency fund. This should include your living expenses, lifestyle expenses and EMIs. It's a good idea to open a joint account, so that both can have access to the funds in case of an emergency

Buy sufficient life cover

Buy a life insurance cover big enough to replace your income as well as repay outstanding loans. The cover should be at least 8-10 times your annual income plus debt obligations. A term insurance policy is the best form of life cover. Buy online to save on costs.

Get the right health plan

Medical insurance is a must. Get a family floater cover of at least Rs 5 lakh for medical needs over and above the medical insurance provided by your employer. Buy a top-up plan to save on costs.

Get your investment mix right

Choose a good mix of debt and equity products. If you are too risk-averse when you are young, you might miss the opportunity to create wealth. Invest in equity funds because you are young. Age-based asset allocation is a good strategy. To arrive at the equity exposure in your portfolio, subtract your age from 100.

Don't take debt

One of the biggest temptations for young couples is to buy things on credit. Do not take a loan to spend recklessly on exotic vacations, expensive health clubs and latest gizmos. If you use a credit card, ensure you don't roll over the credit or pay only the minimum amount due. In no time, the debt may become too big to handle.

Buy a house if emi below 40% of income

Don't rush into buying. Choose the property after due diligence and if it's within your budget. If your home loan EMI is more than 40% of your net take home pay it is beyond your budget. Buy the home jointly so that both partners can avail of the tax benefits on the home loan.

Start saving for child

Ideally, you should start planning your finances for your little bundle of joy a year or two in advance. Most employers offer maternity benefits as part of their group insurance policy. But, it's good to build a small corpus over a period of one or two years especially for post-delivery expenses