By Kathy Kraeblen and Jonathan Bjoring
When it’s wedding season, love is in the air and couples are crossing off items on their wedding day checklist.
But marriage involves more decision-making than choosing between vanilla or chocolate cake – it involves financial choices that can make or break a relationship.
U.S. wedding costs are estimated to have steadily increased year over year, averaging upwards of $32,000, and that’s excluding the honeymoon and the engagement ring.
Money is often cited as one of the leading causes of stress in marriage so it pays, in more ways than one, to know the kind of financial marriage you may be getting into with your soon-to-be spouse.
Planning & Paying for the Wedding
Before tying the knot, couples need to address how compatible they are on longer-term and critical lifetime issues, including money and finances. Realistically, a wedding is only one day of a lifetime journey together. Although a short-term financial goal, missteps can damage the couple’s finances in the long run, so it’s important to consider:
- Who pays for the wedding day? If the couple is paying, evaluate existing savings and save until it hurts. Want a fancy honeymoon? Put cash away each month leading up to it. Saving allows couples to spend within their means. Don’t overextend. If a couple’s “something borrowed” is money – from family or a bank – write out a payback plan to make it real, including interest. No one wants his or her “something new” to be overwhelming debt.
If a couple’s family is footing the bill, talk together about expectations and costs. Families also have the possibility of extending a home equity line of credit for emergencies. This line of credit typically provides a tax deduction on interest and allows you to schedule payments instead of dipping into savings and investments.
- Prioritize wedding costs: Planning a wedding is balancing needs and wants. Agree to a budget. List all options, prioritize them and discuss purchases ahead of time. Compromise with a trade-off. If a couple wants a more expensive photographer, cut back on a low priority such as flowers or favors. Re-prioritize until costs are below budget to guard against unexpected costs. Use technology to plan and track the budget.
- Think short-term and long-term: Couples should keep in mind what money is spent on their wedding will affect future spending too. Consider putting money toward a future goal such as buying a house, saving for retirement and college tuition or paying off of existing debts. Although hard to imagine at the time, many longer-term goals will provide a bigger reward.
With all these decisions, remember: This is about life together, not the surroundings on the wedding day. We cannot discount cherished memories, but we can advise to think twice about how much is spent.
Honeymoon: Honest Conversations
- Clean out and organize the financial closet: Couples make financial mistakes; however, learn from the past, look toward the future and don’t avoid important discussions. Discuss individual credit scores - one person’s poor credit can hurt the spouse’s credit rating. Discuss how much debt, including student loans and mortgages, is being brought into the marriage. Decide what to pay off first and how to manage it – together.
- “My” vs. “our” money: Ideally, all assets should be viewed as “ours” not just “mine.” However, the couple should mutually decide whether to keep them separate or merge them. Choose whether to have joint or separate accounts or consolidate accounts with the same bank.
- Who’s the CFO of the house? Decide if one person runs the finances or if it’s a partnership. This involves paying bills and managing budget and cash flow – how much money is coming in and going out.
Living Happily, Financially Ever After
- Prepare for retirement: It is important that partners understand each other's views on saving and investing. Realize what savings are already there - savings accounts, retirement 401(k) plans, Roth IRAs, etc. Understand each other’s comfort with risk, major life goals and purchases that affect finances and prioritize where to put the money.
- Put up the Safety Net: While a financial plan may be in place, life can be unexpected. An estate plan with a will, health care directive and power of attorney can help decision making in the worst times. Adequate health care coverage, life insurance and long-term care coverage also provide additional financial stability and protection.
- Dream Big, Plan Realistically: Individual accounts or surprise splurges can derail a couple’s mutual objectives. For mutual dreams, such as starting a family or purchasing a home, to become reality, partners must remain open and honest about major joint financial goals.
The bottom line is open and honest communication will most determine success or failure in any relationship, but certainly is crucial when dealing in family finances.
Kathy Kraeblen is a senior wealth strategist with PNC Wealth Management Group
Jonathan Bjoring is a financial advisor with PNC Investments
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