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Valentine's Day Spectacular
valentine's day tip with roses

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Pete and Alex are joined by Morgan McMillan to discuss engagement rings and sharing finances in relationships on the 2015 Valentine's Day Spectacular.

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Disclaimer: The Team at the Office of Financial Literacy and IU MoneySmarts are by no means love experts. In fact, there is a slew of evidence to the contrary. However, we are experts when it comes to smart spending on love. Please note that we are not liable for any relationship consequences, positive or negative, as a result of you reading our tips and/or listening to our podcast.

In our office’s few years of existence, we’ve had several students ask us about various costs associated with love, whether it be getting engaged, paying for a wedding, buying a house, starting a family, preparing for their divorce hearing (just kidding), etc. The fact is that being in love will cost you quite a bit of money over the years, and it will be up to you to figure out how to best spend the money to allow your relationship to grow, without you going deep into debt over it. Homeownership, starting a family, and all of those other big post-graduation issues are topics that require their own lessons, and we previously covered the cost of love in college (see here). For this week, we’ve decided to focus simply on the engagement and wedding/honeymoon aspects of love.

The Engagement

Getting engaged is a tricky financial thing, especially if you’re trying to do it while in school or right after school when your financial situation is pretty unstable. You may have heard of the rule that says you’re supposed to spend 3 months’ salary on an engagement ring. We may get hate mail from some of our readers for saying this, but there are definitely other ways to go about it. If you’re a college student, 3 months’ salary may buy you a bag of ring pops. If you’re a recent grad making $40,000, 3 months’ salary means you’re going to spend about $6,000 (approximate net income) on a ring. This doesn’t really make a whole lot of sense in either case.

If you’re a college student planning on getting engaged and you don’t have the cash/bank account to support the purchase, there might be a temptation to use a credit card to buy a ring. This is not a great idea. Essentially, as a person new to the credit world charging that much money to your credit card could get you flagged for carrying a high balance, which will negatively impact your credit for the next 7 years. To us, buying an engagement ring means you should only spend as much cash as you have. No offense, but getting engaged is not something for which you should go into debt.

What is the right amount? Again, it’s what you can reasonably afford. It is what you can afford to spend that allows you to still to pay all of your bills comfortably. Don’t focus on rules of thumb; focus on what works best for your financial situation, and you’ll be fine.

Getting Married & The Honeymoon

You may think planning a wedding may is different than the engagement ring situation because your parents may foot the bill for the festivities. While that may be the case, ask yourself whether or not you want your parents to spend that much money. If they have been saving for the wedding (a big thank you to all the parents who have), you might ask them if some of that money could instead go toward a down payment on a house (great gift for you), funding their own retirement (great gift for them), or paying down any student debt you might have (great gift for all). While your wedding should be a day to remember, if somebody else is paying for it, you should still be asking yourself, “If I were paying for it, would I spend the money on ­_________?” If the answer is no, then why would you make somebody else pay for it?

The honeymoon for a recent college grad can be incredibly tricky; how is one supposed to pay for an extravagant vacation when you’re trying to save for a lot of things and you’ve just started saving? In our eyes, there are two options:

1. Many people have turned to honeymoon registries. They pick the vacation, the things they want to do, and ask their guests to purchase one of those items. It could be a meal, an excursion, or something else along those lines. But it cuts back on the cost of the honeymoon. The downside, of course, is that you shouldn’t expect your guests to buy you a wedding gift and a honeymoon gift…so you may have to spend extra money on getting your newly combined home in order.

2. Go on a small honeymoon and save for a bigger one down the road. One of the smartest financial decisions I ever made was opting for a scaled back honeymoon immediately after my wife and I got married and instead saved for a trip to New Zealand, which we took for our 5-year anniversary. For our scaled back honeymoon, we kept it simple and road-tripped to Cedar Point, Niagara Falls, Cooperstown, and hiked through the Poconos. In 5 days, we spent less than $1,000; and both of us have always looked back fondly on it.

How To Save

Surprisingly, it’s not that hard to save money on these various things. It just requires some discipline and introspection. What we mean is that you can save money by spending based on who you are, not how society expects things to be.

In the case of engagement rings, we’re all taught that diamonds are the only way to go. For some, this might be true…and that’s great. But if that’s not who you and your soon-to-be spouse are, and you find yourself getting a diamond because, what else can you do? - there are tons of other options out there. We’ve heard of some finding a different stone had more personal meaning. We’ve heard of people melting coins together that had the current year and the year they were born. In both of these cases, the couples saved tons of money by understanding who they were and using that to help them find something symbolic.

The same goes with weddings. If a big wedding is what you want and you can afford it, that’s great. If you’re doing it just because it’s what everybody else does, you may think about who you two are as a couple and figure out if there’s something more meaningful. The best weddings I’ve ever been to (not counting mine, of course) have involved couples who know themselves well, bringing everybody into that world. For example, I went to a wedding where the couple had everybody hike to the top of the mountain where they went on their first date. If people were unable to make it to the top, they brought along network-connected iPads that allowed them to stream the ceremony live. It was beautiful; it was perfect; and it was a perfect representation of them. Oh, and the only costs were for the dress, the suit, and the admission to the state park. Awesome!

The bottom line is that people saved money on these things, without sacrificing the quality of them, because they took time to be introspective about who they are and what types of things would best represent that. In many cases, this kind of process will end up saving you a lot of money. We just decided to apply it to love this week. That being said, we hope you and your valentine(s)* have a great one this year and many years to come.

*I have a wife and a daughter, hence the pluralism.

Season 4: 02/09/2015