Ways to Cut Wedding Costs

I’m getting married this year, and I couldn’t be more excited . . . about getting married, not necessarily about planning the wedding. The process can be stressful and overwhelming – the organization, details, responsibility, and not least of all, cost.

As a financial planner I’ve thought a lot about the cost of this important day. A quick Google search reveals that the average amount of money spent on a wedding in the United States is over $30,000. It’s not like the old days where fathers paid men a dowry to marry their daughters (thankfully). While both of our families are helping us on wedding cost, we still need to pony up quite a bit of cash on our own. I did not want to start off this next phase of my life in debt.

Through my planning I’ve come across a number of ways that people have saved money on their wedding. While I didn’t choose all of these options, I think they’re all worth considering.  If you know someone who’s planning on tying the knot soon, you may want to share these ideas with them: 

  • Cut the guest count.I’ve experienced night sweats on who to invite to my wedding. I wake up thinking: “They invited me;” “She’s my second cousin twice removed;” or “What about my best friend from kindergarten?” A recent survey by theknot.com shows that it costs over $200 per guest at a wedding. That’s right – over $30,000 for just 150 people! Try to limit your guest to friends, immediate family, grandparents, close aunts and uncles, and close cousins. People will understand you can’t invite everyone.
  • DIY.This isn’t for me, but it is for a lot of people. I’m not overly handy or creative, nor do I have the patience for doing anything myself on my big day. However, if you are that type of person, you should do as much as you can on your own. Try printing your own invites and save-the-dates cards. Research sites like Etsy to get ideas. Pick a creative family member to help decorate for your rehearsal dinner; have a girlfriend do your hair. Every little bit that you can do yourself (or others can do) will save hundreds or even thousands of dollars. Maybe a friend’s participation could be given in lieu of a gift.
  • Don’t be so traditional.More of my friends are not getting married on Saturday. In most cases they are moving to Friday and Sunday where wedding vendors and venues don’t charge the same premium as a Saturday wedding. Also, think lunch reception and maybe not a sit-down, four-course evening meal.  Or, you could just do a champagne toast and appetizers and cut out early for the honeymoon 😉.
  • Pick a season and stick with it.Try to purchase decorations, flowers, and food that are in season. If you are trying to get Birds of Paradise or sunflowers in the dead of winter, you will pay for it. You can save a lot by having a Christmas wedding because most venues are already decorated. Another option is to try for a spring wedding when everything outside is blooming. If you are planning your meal options, do a sautéed veggie option with items that are in season.
  • Bundle. Try bundling items to cut down cost. For example, instead of having a cake and party favors, maybe have a candy station for people to grab something on their way out the door. This way, you still have sweets and favors, but you’re cutting the expense down by really having one.  If you have something around the house that you can use as your guest book, do it! I’ve seen people use globes from a bookshelf to sign, as well as old corn hole boards that were painted with the wedding colors.
  • Keep it casual. Buffets may not give the same vibe as a plated meal, but it’s a lot cheaper. If you really don’t want people to wait in line for food, then try doing family style. This is a bit more expensive but doesn’t come with the extra cost of servers.
  • Hire a coordinator.  This goes against the DIY bullet, but you can save money in the long run. Most wedding planners have discounts and perks arranged with partners and vendors… but be wary and do your research before hiring someone to plan for you.
  • Do everything memorable early. Try to get the bouquet toss and cake cutting out of the way early. If you do everything memorable first thing, you can let your photographer and videographer leave early to cut down on their hourly time. Your guests will continue to snap pictures throughout the night.
  • Buy someone else’s wedding. This may sounds crazy, but sadly, many people cancel their wedding every day. Most deposits are already put down and can’t be returned. Decorations have been bought, and gifts have been purchased.  Check out http://www.bridalbrokerage.com/to purchase someone else’s unfulfilled day.

Finally, the number one way to save money… ELOPE! Have a quick wedding, a potluck in the backyard, good conversation and s’mores by the fire, and call it a good day!

Good luck on planning your special day!

Ashley Woodring, CFP®
Financial Advisor

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The Rational Investor… or Not?

This is the last post in a series of six blog entries focused on topics that might be of interest to the Millennial generation. If you would like to see our attempt at making these subject matters entertaining, visit our YouTube page to see a video version of this article.

 

So here’s the setup: you have two large pizzas. One is cut into four pieces, the other is cut into eight pieces. Would you rather have one piece from the former, or two pieces from the latter? If you asked a hungry four-year-old that question, he’d probably be totally confused because you used the words “former” and “latter.” But then he’d go for the 2 pieces because in his mind, two pieces are more than one. Of course, anyone with a basic knowledge of fractions knows this is a trick question, because it’s the same amount.

Let’s imagine now that the pizzas are companies, and the pieces are shares of stock in those companies. You have $1000 to invest. Company A’s stock price is $50, and company B’s stock price is $100. Assuming that there are no trading costs, you can purchase 20 shares of company A and 10 shares of company B. All else equal, which would you buy? Answer: it doesn’t matter – your investment in either company is the same. You’d be surprised at how many people would choose company A because you get “more” shares of stock or because they think the shares are a better “value” by virtue of having a lower price per share. The thing you have to realize is this – a company can issue any number of shares it wants to. If the price per share is $100 they can issue a 2-for-1 split, and now you’ll have 2 shares worth $50 each for every one you had before. Your total dollar investment in the company doesn’t change, though.

We all want to believe we are rational and that emotions are only something that affect other people, but it just isn’t true. We all have made mistakes like the investor in the example above and that’s why behavioral finance is one of the fastest-growing branches of psychology. This is just one example of common investor misconceptions but there are many more – click on the link above for a lighthearted look at a few that we see from time to time. Remember to always discuss your investment decisions with your advisor, so that he or she can lead you in the direction of the logical and unbiased choice.

Sarah DerGarabedian, CFA
Portfolio Manager

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Interest Rates and How They Impact You

This is the fifth post in a series of six blog entries focused on topics that might be of interest to the Millennial generation.

Today I’m going to touch on the exciting topic of interest rates. Okay, let’s be honest, most of us consider the subject boring and highly technical at best, and pure financial torture at worst. But hear me out. I’d like to explain why interest rates are in fact pretty fascinating, surprisingly straightforward, and worth learning about. The truth is that interest rates can have a massive impact on your current and future financial situation.

So what are interest rates? And how do they affect your financial well-being? If you think about it, everything in our modern society has a cost. You pay for a good meal at a nice restaurant, there’s a charge for staying at a hotel, and an education certainly isn’t free. The same holds true for money. It has a cost and that cost is interest rates. In order to get your hands on some money, say for a car loan, a mortgage, even groceries, you pay for that money in the form of an interest rate. When you have a good credit history, i.e. you consistently pay back other people’s money in a timely manner, you’re considered a good credit risk and it becomes cheaper for you to borrow money in the future. In other words, the interest rate you’ll get charged on loans will be lower than the average person. This is a good thing for your financial well-being. On the flip side, if you are even occasionally late on a credit card, car loan, or any other debt payment, you become a less desirable credit risk and the rate at which you’re charged to borrow money in the future goes up. In other words, the interest rate on the next loan you take out will be higher and you’ll pay out more money over the course of the loan, all else being equal.

You may have heard about the compounding power of interest and how it can help you significantly grow your wealth. This is a very true financial tenant when it comes to investing your money. However, this same principle also works against you when you step into the role of a borrower. As an example, consider that the median price of a home in 2013 was about $200,000. Now assume you take out a 30-year fixed mortgage to purchase a home. You’ve worked hard and have 10% in cash to put down. This leaves you with a $180,000 mortgage. Going interest rates for borrowers with good credit are around 4.25%. Even though these are still historically low rates, at 4.25% you can expect to pay approximately $138,960 in interest alone over the life of the loan! That’s in addition to the $200,000 cost of the house. Now let’s pretend that your credit is a little below average, making you a slightly higher-risk in the eyes of a bank. You’re still able to secure a loan, but the bank wants to charge you a 5.00% interest rate in order to compensate for the risk they take on by lending to you. At a 5.00% rate, you can expect to pay $167,760 in interest over the course of the loan, or almost $30,000 more than you would pay with a better credit score. That is some serious money.

On top of the impact interest rates have on our personal investments and debt payments they also affect our spending and saving behavior. Imagine that your bank was offering a savings account with a 10% interest rate. All else being equal, would you be more or less inclined to save? That’s right. Most people would choose to direct more of their personal income towards savings when interest rates are higher. If millions of people were forgoing spending in favor of savings, this would have a significant effect on the overall economy. Interest rates matter. What about high interest rates when you’re the borrower? As we saw above, even a small increase in an interest rate can lead to much larger debt payments. Generally speaking then, higher interest rates tend to depress credit growth and in the end can muddle economic activity as consumers take out fewer loans.

As you can see, interest rates can have a very direct and often significant effect on our personal financial situation, not to mention our saving and spending patterns, and the broader economy. Although we’ve only skimmed the surface, suffice it to say that interest rates are worth understanding, if for no other reason than to help you make smarter decisions with your money.

Carrie Tallman, CFA
Director of Research

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Renting vs. Buying

This is the fourth post in a series of six blog entries focused on topics that might be of interest to the Millennial generation.

In my experience, one of the largest financial decisions clients struggle with is the decision to rent or purchase their residence. There is not necessarily a right or wrong answer, and every individual’s situation is different. However, there are some scenarios that may help guide you in making the right choice.

Let’s start with buying. Here are five factors that may make it more beneficial to purchase:

  1. You like the idea of “forced savings” – as you pay your mortgage your balance owed is reduced. Building this equity in your home will create a form of savings for you. Since the value of the home is locked in, you can’t squander it away on dining out or shopping. You realize the savings once you decide to sell it.
  2. You think the tax incentives are attractive – when you file your taxes, you will be able to deduct mortgage interest. Property taxes will also add a nice deduction. If you do any energy-efficient improvements, you could be eligible to deduct those expenses. Another bonus is that depending on your situation, any capital gain from the future sale of your home is free from federal income tax.
  3. You want stable payments– typically your mortgage payment will never change, while rent is more susceptible to rise with inflation. Purchasing may be right for you if you are looking for a stable cost of living.
  4. You dislike the restraints placed by your landlord – often when renting you must get everything approved. If you want to paint, rip up the carpet and put down hardwoods, take out a wall or have a dog, then owning probably makes more sense. Home ownership allows you to customize a space and really have a place that you can call home.
  5. You value a second-income stream – by owning a home, there is potential to create additional income by renting part of it out. If you have an extra bedroom, finished basement, or a garage for storage, it’s possible to rent to friends, family or others to help cover your mortgage payment.
  6. Bonus – quite possibly the biggest bonus of all is you will be debt free in retirement with no mortgage payment. You will always have the expense of a rent payment if you continue renting.

But guess what… buying may not be right for everyone. It’s important to remember that there is more to owning a home than just a mortgage payment. Between maintenance, fees, and taxes, the costs can add up. And other factors may contribute to make it an unwise choice for some people to purchase. Here are five factors that may make it more beneficial to continue renting:

  1. You plan on moving – home ownership is not a short-term investment. If you think that you may be moving for any reason within the next 3-5 years, it’s wise to continue to rent. Once you are settled, revisit the topic!
  2. You don’t have good job stability – of course you can never be 100% certain if your job is stable, but the possibility of your income going down could greatly impact the type of home you can afford. If you expect to quit your job, or anticipate being let go, hold off on a home purchase until there is a bit more certainty about the future.
  3. You just aren’t that handy around the house – as a renter, you don’t have to worry about maintenance issues. If the pipes burst (something that the author can relate to), then the landlord is responsible for repairs. For a homeowner, it’s 100% on you. It’s up to the owner to paint, shovel the drive when it snows, and fix the garbage disposal when it’s broken. If you aren’t ready for the hassle or expense involved with being the fixer-upper, then perhaps home ownership just isn’t for you.
  4. You have a low credit score – having a solid credit score is vital in purchasing a home. While it may not prevent you from getting a mortgage, it could drastically affect the interest rate that you receive. If you have a score below 700 it would probably be best for you to rent while paying off debt and building up your credit.
  5. You don’t have money for a down payment – if you don’t have any cash squirreled away for a down payment, it may not be the time to purchase. If you don’t have a 20% down payment you will have to pay PMI (private mortgage insurance) which will increase cost of monthly payment. Use this time to save and budget before taking the plunge.

These are some of the basic pros and cons of renting vs. buying. Since every situation is different, it’s always best to speak with a financial advisor about the circumstances surrounding your own decision matrix.

With correct planning and consideration, we’re sure that you will come to the best decision for you!

Ashley Woodring, CFP® Financial Advisor

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