Joint investments: why it's important for couples to plan a financial future together

Money matters are not always an easy subject for couples to get to grips with, but with the ongoing cost of living crisis, balancing those monthly finances and saving for the future has never been more important.

SoGlos speaks to William Collins, managing director of Gloucester-based Sanderson Financial, to get his top tips for a healthy financial future.

What advice do you have for newlyweds who are setting up their finances together?

It's important for couples to have ongoing conversations regarding their finances. By discussing your individual/joint financial goals, spending habits and any existing or ongoing debts, long-term solutions can be created and continuously updated.

A particularly advantageous activity can be creating a joint budget based upon combined income. That way you can decide on how you will handle day-to-day spending, such as whether you will have a joint account for household expenses or maintain separate accounts.

Another aspect of a budget can be how much you want to save each month and what you are saving for (such as a house, car, holiday or retirement). Consider different saving and investment options, like ISAs (individual savings accounts), pensions and other investment vehicles.

If either of you has existing debt, like student loans or credit card debt, create a plan to manage and pay off this debt. Building an emergency fund that can cover unexpected expenses or loss of income should also be a high priority within a budget. A common recommendation is to have enough to cover three to six months of living expenses.

Another consideration for married couples should be the Marriage Allowance, which permits a lower-earning spouse to transfer a portion of their personal allowance to their higher-earning partner. Also, should couples have children, they could (depending on their income) utilise Child Benefit, a payment made to parents or guardians of children under 16 (or under 20 if they are in education or training).

Do you recommend joint finances for couples?

Whether to combine finances as a couple is a personal choice and largely depends on each couple's circumstances and preferences. There are advantages and disadvantages to both joint and separate finances and it's important for couples to consider what works best for their relationship and financial goals.

Joint finances simplify the management of bills and expenses, as everything is consolidated into one account, making tracking and budgeting more straightforward. Additionally, pooling resources often means more significant combined wealth, which can be advantageous for larger investments such as buying a home, saving for larger one-off purchases and planning for retirement.

On the other hand, one of the primary concerns is the loss of financial independence, as individual spending and saving habits must be aligned. This can potentially lead to conflict, especially if one partner is more frugal or risk-averse than the other. In cases where one partner has significantly more debt or a poorer credit history, joint finances can negatively impact the other's credit score or financial standing.

A popular approach for many couples is a hybrid approach, maintaining both joint and individual accounts. This allows them to manage shared expenses jointly while retaining personal spending autonomy.

Should couples put any security plans in place for their finances?

Couples should certainly consider implementing security plans for their finances, as this can safeguard their financial future and provide peace of mind. As previously mentioned, establishing emergency funds is a fundamental step. Ensuring there is accessible cash earmarked to cover unforeseen expenses or financial downturns, such as job loss or medical emergencies is crucial forward planning.

Diversifying investments can also protect against market volatility, reducing the risk of significant losses. Appropriate insurance policies are another consideration of financial security, ensuring that the couple or the surviving partner is financially supported in case of death, critical illness or inability to work.

Another important consideration is reviewing your insurance coverage, this is a crucial step for newly married couples. Start by examining your life, health, and disability insurance policies. Consider whether the coverage amounts are sufficient to provide financial protection for your spouse in the event of an unexpected tragedy or illness. This is also an excellent time to explore potential cost savings by consolidating or combining policies. By addressing your insurance needs early on, you can enjoy peace of mind, knowing that you've taken proactive steps.

Should anything be put in place for children?

The importance of parents setting up financial solutions for their children cannot be overstated. With the rising costs of education and housing, as well as the uncertainties of the job market, providing children with a financial head start can be crucial for their future stability and success.

Products like Junior ISAs offer tax-efficient ways to save and invest for a child's future, be it for education, buying a first home or starting a business. These savings vehicles can compound over time, resulting in a substantial financial cushion when the child reaches adulthood. This foresight in financial planning reflects not just a concern for the child's immediate wellbeing but also a strategic approach to ensuring their long-term prosperity and security.

And with financial security for the whole family in mind, it is advisable for couples to have ongoing conversations about their financial goals and risk tolerance, and possibly consult with a financial advisor to develop a tailored plan.

What are the top five most important financial matters for couples to be aware of when embarking on life together?

Wills and lasting power of attorney

One often-overlooked aspect is estate planning, but it's a crucial step that can safeguard your shared future in the event of the unthinkable.

One of the first steps in estate planning for newlyweds is to create or update your wills. A will outlines how your assets will be distributed upon your passing. It's especially important if you want to ensure your spouse is adequately provided for in the event of your death. A will allows you to specify who inherits your property, possessions and financial assets, making sure your wishes are legally upheld.

Beyond wills, consider establishing powers of attorney. These documents give your spouse the legal authority to make financial and medical decisions on your behalf if you become incapacitated. Without them, your partner may face obstacles in managing your affairs or making critical healthcare choices during challenging times.

Protecting your assets and income

One way to strengthen your financial foundation as a couple is by considering joint life cover and income protection. These financial safeguards provide invaluable peace of mind and security, ensuring that you and your spouse are well-protected in various life scenarios.

Joint life cover is designed to provide financial support to the surviving spouse in the event of the death of one partner. This means that should one of you pass away, the surviving spouse will receive a lump sum or ongoing payments, helping them maintain their quality of life, cover outstanding debts and provide for dependents.

Income protection insurance ensures that if either of you becomes unable to work due to illness or injury, a portion of your income is replaced. This means you can continue to meet your daily expenses, mortgage or rent payments and other financial obligations while focusing on recovery.

Building wealth for your future

Creating and growing wealth as a couple requires careful planning and smart investment decisions. But before diving into the world of investments, it's crucial for couples to define their financial objectives. These goals can be short-term, like saving for a dream holiday or a down payment on a home; or long-term, such as building a comfortable retirement nest egg. Being on the same page regarding your financial aspirations will help guide your investment strategy.

Before thinking about investments, make sure you have the previously mentioned emergency fund in place, so you're prepared for unexpected events without needing to dip into your investments.

One of the most important principles of investing is diversification. Spread your investments across different asset classes, such as stocks, bonds, real estate and even alternative investments like cryptocurrencies or precious metals. Diversification helps reduce risk and enhances the potential for long-term returns.

Tax-efficient investments

Tax planning is a vital aspect of wealth-building. Take advantage of tax-efficient investment options like ISAs and SIPPs (self-invested personal pensions). These accounts offer tax advantages that can significantly boost your investment returns over time.

Invest for the long term

Investing is not a get-rich-quick scheme. It requires patience and a long-term perspective. Instead of trying to time the market or chase short-term gains, focus on building a well-balanced portfolio that aligns with your financial goals and risk tolerance.

Also consider setting up automatic contributions to your investment accounts. This 'pay yourself first' approach ensures that a portion of your surplus income goes directly into your investments each month, making it easier to stay consistent with your saving and investing goals.