A co-worker recently learned that his daughter will be getting married in June 2014. After offering up my congratulations, we talked about taking several financial steps to ensure that the bride can enjoy the day while her parents can pay for a wedding dress, church service and all of the other expenses for this happy event.
Fortunately, like many parents, my colleague has been saving money in anticipation of this big day, and has even developed a budget to cover any unexpected expenses.
While these kind of major events don’t come around often, they serve as a reminder that we always need to have a solid budget in place, a good savings plan and to be prepared for the unexpected.
Here are some of the steps my colleague is taking to ensure that he doesn’t fall into debt as the wedding day approaches:
- A savings fund of $10,000 is available. While this fund typically serves as his emergency savings fund, this is exactly the purpose for such a fund — to cover unplanned expenses by eliminating the need to borrow. The bride’s parents plan to take 40 percent of their emergency savings to cover wedding costs.
- Reducing his contribution to his 401(k) plan. Instead of borrowing money, my co-worker is cutting his contribution to his retirement savings plan from 14 percent to 9 percent over the next year, and socking away these savings. While I don’t support this move in a typical budget, it makes more sense than taking on debt and will provide him with an extra few thousand dollars. However, the reduction in savings to his retirement account will mean a rise in federal income taxes next year.
- Because they have a year to plan, my colleague and his wife have decided to take on extra projects to earn extra money. Again, this decision will help bring in an extra few thousand dollars.
- Reducing expenses by eliminating vacations and trimming holiday spending. The couple has examined their budget and decided to save money by staying at home in 2013 and cutting their spending during Thanksgiving and Christmas. The savings from these moves can be used to cover down payments on reception halls and other major costs.
- Fortunately, the bride’s parents are scheduled to pay off their mortgage in January 2014. By pocketing the savings from these payments between February and the June wedding, the couple will have some additional funds to cover any unexpected expenses.
I think that the couple has put together a solid plan to save money and reduce their expenses, enabling them to avoid borrowing to pay for the wedding. And while I’m not crazy about the plan to cut back on 401(k) contributions, the couple is still saving for retirement — just not as much. Once the wedding is over, they can increase their contributions and focus full-time on saving for retirement and allocating funds for other investments.