7 financial facts you must know about your Valentine

Know these facts about your Valentine to keep bitter surprises away.

Every year, Valentine's Day is considered a special to celebrate love and express feelings. Couples usually exchange valuable gifts, watch a romantic movie, plan for dinner, go out on holidays to romantic destinations, etc. However, it's recommended you understand financial facts and behaviour of your Valentine before rushing to say 'I Love You' and tie the knot.

There are instances when couples part ways on account of financial infidelity. A famous quote runs like this: Finances may not be the most romantic thing to discuss, but ignoring them can create huge problems later in the relationship.

Today, most youngsters are financially independent, have own source of incomes, assets and debts to repay. So, full disclosure of the seven financial facts mentioned here would help you to understand your Valentine in a better way and keep bitter surprises away in your relationship.

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The author is Certified Financial Planner and can be reached at hiralthanawala@gmail.com.

1. Risk quotient

Risk quotient measures a person's risk taking capability. Each of us has different traits when it comes to taking decisions related to money while investing, spending and saving. It's considered that people with high risk quotient tend to gamble in stock markets with the belief, 'high risks and high returns.'

However, if your risk quotient is low, then you would be investing in bonds, fixed deposits, post office savings, and such. So, ideally it's necessary to identify risk quotient of each other by consulting financial experts, online services or taking quizzes.

Then, plan for something in between considering each other's risk quotients, compromising in monthly budget (if required) and take investment decisions together to stay happy.

2. Net worth

Net worth for an individual is the value of a person's assets, including cash, minus all the liabilities (debt). So, the amount by which the individual's assets exceed their liabilities is considered the net worth of that person. In case your valentine's net worth is positive then it's good news for you.

But if it's negative, then you could have a difficult journey together after marriage. In such a situation, you both need to get income from other sources by working hard, budget your monthly expenses and improve your net worth by repaying debt on time.

3. Savings rate

Savings play a vital role to manage the debt and build the corpus for retirement. So, if your valentine's net worth is negative but has good savings rate then, you need not worry about her/him to pay off debts in future. Your spouse would be in control of finances to build up long term corpus and simultaneously achieve set goals in future while paying off debts taken for higher education, setting up business, etc.

However, if your spouse is spending much quicker than savings, then you are looking at big trouble post marriage. Such people would hide certain amounts from regular income and unnecessary purchases, so that you won't get annoyed about them. Also, it would be difficult to manage debts in future if your spouse is not supportive and keeps secret accounts to spend. So, it's necessary to identify savings rate and behaviour of your Valentine before you propose marriage.

4. Emergency funds

Contingency fund is a fund used in emergencies or unexpected cash outflows in future due to uncertain events such as severe medical expenses on parents' illness, unemployment during economic crises, etc. The contingency fund saved should ideally take care of four to six months living expenses and invested in liquid funds to use in uncertainty.

If your Valentine has maintained such funds for future uncertain events, then it's an ideal sign that s/he has sound knowledge to look after finance management. Consider this as positive trait and you can manage your savings, expenses and investments in a safe way.

5. Credit score

Your Valentine's credit score plays a critical role in the loan approval process in the future i.e. when you apply to buy a house or automobile through bank loan together. The credit score gives loan providers an indication of your capability to pay back a loan, based on your Credit Information Report (CIR).

Ideally, high scores mean you've good credit history and likely to get best deals while borrowing from banks. You can apply for credit scores to CIBIL, Equifax and Experian credit bureaus. You can also apply for credit scores online at CIBIL. As per CIBIL, 80 per cent of all new loans sanctioned are above 750 score.

However, it is important to note that some young people have low scores because they have no credit, rather than bad credit history.

6. Insurance coverage for uncertainty

Nowadays, the rising inflation impact medical costs. So, it's a must to have adequate medical insurance coverage and life insurance cover for uncertainty in future. There is easy-to-use insurance calculator on InvestmentYogi website. Here, you can compute the sum assurance required and match the figure with policy taken by your Valentine.

If there is a shortfall in sum assurance, then plan to increase the sum assurance in this policy while renewing to secure family expenses and pay-off debts in any unfortunate event post marriage.

7. Sync investments with life goals

Discuss individual goals and prioritise them in your life before marriage. Analyse financial realities and start investing towards it. Each goal would require different planning and sacrifice that both partners need to take mutually. So, learn to complement eachother for commitment and sacrifices while achieving common goals set together for future.

Think of your Valentine as a 'Friend in need is a friend indeed' to stay wedded happily forever.