Newlyweds typically receive a fair amount of cash gifts to celebrate a wedding. So, what should the bride and groom do with all that moolah?
“Couples can easily forget to organize their finances until money becomes an issue, especially when they are in the midst of planning a wedding — a very stressful task,” says Kim Viscuso, a certified financial planner with Stonegate Wealth Management in Fair Lawn. Here are some guidelines to help:
Start an emergency fund: You never know when you’re going to need some rainy day cash. Perhaps you’ll have a big-ticket repair for your car or an unexpected medical bill will arrive in your married mailbox. Rather than use credit cards, stash some of the cash in an emergency fund.
“It’s always important to have an emergency fund of at least three to six months of income,” says Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna. Financial advisors recommend you park your emergency cash in a safe and liquid account, such as a savings or money market account.
Pay off debt: If you’ve accumulated credit card bills to pay for your wedding, or if you have old debt, this is a terrific opportunity to start your married life with a clean slate.
“If the debt is credit card debt or any other high interest debt, you want to pay that down as quickly as possible,” Meckler says. “You may want to split paying the debt with saving for an emergency fund.”
If you have several credit card balances, start by paying down the one that has the highest interest rate. Then, make sure you don’t add new debt.
A place to call home: One of the biggest challenges to buying a home is to accumulate enough cash for a down payment. Earmarking wedding cash for this goal is a smart strategy. Putting the funds in a safe and liquid account that will earn a decent interest rate, though, is a tough task.
“There are not too many great options today, I am sorry to say, as a result of the Federal Reserve keeping its short-term interest rates so low for so long,” says Viscuso. “This has a negative impact on the purchasing power of investor savings.”
She says that savings accounts and short-term certificates of deposit will protect the principal balance and provide liquidity. But you can take it one step further and register for a home savings account. This is similar to a gift registry in which you select a china pattern. But a home savings account directs your guests to your house fund instead. Visit hatchmyhouse.com to learn more.
The federal government also offers a savings program for homebuyers: the FHA Bridal Registry. A couple would chose an FHA mortgage lender, and set up a savings account that’s dedicated for a down payment on a home. For more information, call the HUD office in Newark at (973) 776-7200, or the Camden office at (973) 776-7200.
Other registries: Similar to a home savings fund, there are other registries that you can consider as a destination for wedding gifts.
Honeyfund.com takes financial gifts for your honeymoon. Guests can select what they want to contribute to: your airfare, a special romantic dinner or even day tours at your honeymoon destination.
If you’re not in need of cash, register with the I Do Foundation (idofoundation. org) and guests can make a charitable donation in your name to your favorite causes.
“Times have changed and I think the new trends are great,” Meckler says. “It gives the guests many options now to give gifts.”
Longer term cash: Nothing says you have to spend your wedding cash fast. You could save it for the long- term, instead. If the couple is looking at least 10 years out, Viscuso says, a conservative diversified portfolio may be the answer.
“This would have the potential to earn more, but would also carry some risk depending on the risk tolerance of the couple, as well as the ratio of fixed income to equity securities. Fixed- income securities protect the portfolio from losses during a down market while equity securities can provide gains from a rising market.”
If you’re thinking really long term — such as retirement — consider an Individual Retirement Account.
You can set aside $5,500 (or $6,500 if you’re older than 50) in an IRA.
A 35-year-old who saves the max in a one-time investment that earns an average of 7 percent a year will have $41,867 by age 65.
Not too shabby.