How to keep your "I Do" day from creating big debt

Planning a wedding has never been easy. But anyone trying to do so over the last two years has faced a host of new challenges. Venue closures, travel restrictions, and wary guests are just a few obstacles they've had to overcome.

Yet as unique as these recent years may have been, there's one wedding constant that hasn't changed one bit: 

They don't come cheap.

According to The Knot, the average cost of a wedding in 2021 was $34,000, with most of those costs ($28,000) going to the ceremony and reception. That's already back in line with pre-pandemic spending levels.

And the news doesn't get much better.

According to WeddingWire, 74% of couples go over budget on their wedding – and the average couple underbudgets what they'll spend by as much as 45%.

Are you ready for more? In the Brides and Investopedia 2021 wedding survey, 9 out of 10 respondents said they've put off at least one significant financial priority – like saving for a home, starting a family, or saving for retirement – in order to pay for their wedding.

At a time when wedding planners report that prices for food, rentals, and venues are skyrocketing, it's worth looking at how couples and their families can prepare to handle the expense. 

First, who's paying?

These days, more and more couples are paying for their weddings out of their own savings instead of asking for help from family. But as the above numbers show, it's quite an investment.

Most couples start saving toward their wedding once they get engaged. But more often than not, they're also struggling with other financial constraints such as saving for a home or paying off credit card debt.

This helps explain why most engaged couples still go the traditional route and rely on help from family.

No matter who ends up signing the checks, it all boils down to two key factors – where to save and how much.

Where to save

At CapWealth, we're often asked by clients how soon they should start saving for their child's wedding. The obvious answer is as soon as you can, and a UTMA (Uniform Transfer to Minor's Account) is an ideal way to do it.

The UTMA allows minors to receive gifts and avoid tax consequences until they reach legal age in their state, at which point the money or gifts legally become theirs. (In Tennessee, it's when they reach 21.) It offers an easy way for children to save and invest without the accompanying tax burden. For 2022, the IRS provides an exclusion from the gift tax on qualifying gifts of up to $16,000 per person.

We often see parents using UTMAs to help their children save for things outside of education. It could be a car, a down payment on a home, or, for our purposes here, a wedding. A key advantage is the fact that it gives parents plenty of time to save slowly.

If you and your partner are saving for yourself, an individual or joint investment account is usually the best route. But this also depends on your time frame. And remember that there's always a risk when investing money, particularly over the short term, as we've seen in recent months.

If you're on a tight time frame – 2 years or less – you likely won't want to invest the money at all. If the current market conditions are any indication, volatility can work against you when you need money on a relatively short basis. That makes a CD or other short-term cash equivalencies a safer bet.

How much to save

The basic concept is the same as with any other budgeting approach – take your targeted wedding budget and divide it by the number of months you have to save. If you need $28,000 and have two years, then a little over $1,000 a month is what you need to save. ($1,166.67, to be exact.)

If you have longer – let's say 21 years, in the case of parents using a UTMA – you'd only need to save $52 a month to save $28,000 (assuming a 7% annual return over 21 years).

Just remember to keep your targeted budget realistic. If you don't think you can hit your savings number regularly, you have two choices. Either dial back your wedding plans (and budget) to a more reasonable level or delay the wedding to create a more extended timeframe in which to save.

These can be hard choices to make. But they're vitally necessary. There are ongoing costs that go into a wedding – many of which are unforeseen. So it's important to plan ahead and save. Otherwise, you and your family could face some very unpleasant financial repercussions that can linger for years.

Jennifer Pagliara, CFP, CTFA, is an executive vice president and financial adviser at CapWealth. For more information, visit capwealthgroup.com.

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