Spending & Saving
No matter how smart you are with your money, there will always be major expenses that you’ll have to dish out money for. Take heart! You can still make these major moves wisely.
Consider a few of the obvious ones:
There is no one standard way to have a wedding. Different religions have their own customs and traditions, and different people may choose to have minimalist or extravagant weddings, depending on their personal preferences. One thing is certain though, people still love getting married! Approximately 2.4 million people in the U.S. get married every year.
On average, 90% of the total costs of a wedding are the reception venue (~$13,400), the engagement ring (~$5,600), the reception band (~$3,500), the photographer (~$2,400), and the ceremony site (~$1,800). All of these together brings the cost to about $27,000! The reception venue is by far the most expensive as you have to pay for bar service, catered food, venue rental, and equipment rentals.
It is important to have a hard upper-limit on how much you both plan to spend on a wedding, otherwise expenses will get out of control. Make sure to have some kind of planner or spreadsheet to document where you spend your money. Try and book the venue as early as possibly due to it being the biggest expense. Finally, have some kind of buffer because there are always unexpected expenses that pop up that weren’t considered.
One of the biggest costs in a wedding is the cost per guest. Having a sense of how large the guest list will be is important as every additional guest increases your costs significantly. The average cost per plate in the U.S. is $30 but fancier weddings can go up to $100 per plate. Further, increasing the guest list will also affect virtually every other cost, for example, how big the venue has to be.
There are differences in the costs of weddings across states. People from wealthier states tend to spend more on weddings. It is important to not spend too much of your annual salary on your wedding (unless you have been saving up for it). The state that has the highest average cost of a wedding is Hawaii with a price tag of $37,800, but the average for some cities, like NYC, is much higher at $88,200.
On the flip side of weddings is…
We know we just covered weddings, so sorry for this untimely topic we’re covering next… divorce, which is unfortunately quite common. 50% of marriages in the U.S. end in a divorce, so it’s important to understand the steps and costs involved.
First, one spouse files a divorce petition stating they meet the state residency requirements for divorce and has grounds for divorce. The filing spouse then “serves” a copy of the filed paperwork to the other and proof of service to the court. Then, both parties negotiate a settlement on contentious topics like child custody or property division.
They can also ask for temporary orders for child custody, spousal support, etc. from the court, which will be valid until the divorce is finalized. If negotiations fail, you may have to ask for help from the court in trial— try to avoid trial as it’s costly and takes all control away from you and your spouse!
The average cost of divorce is around $15,000 per person in the U.S. Woah, that’s a lot! Many factors affect this average cost, such as whether the divorce is contested (go to court) or not, the hourly rate of lawyers, the location the divorce is filed and local filing fees, child custody, alimony and mediation. Whew, and those are just a few!
The best way to limit costs is to settle outside of court and without a lawyer. That way, you’d only pay a filing fee, which differs per state. Very few couples settle so easily, but think about costs before letting emotions run. Mediation can also help you reach a fair settlement; it costs money but can save you from court costs.
Another major expense is higher education.
Post-secondary education is whatever education you receive after high school. This could be an associate’s degree from a community college, a bachelor’s degree, a master’s degree, or a doctoral degree.
The cost of a post-secondary education varies quite a lot. If you’re just considering a bachelor’s degree, you may pay $100,000 for a public university or $250,000 for a private university. If you go further and study a master’s or a doctoral degree, you will be paying even more. Education is an expensive (but valuable) long-term investment!
However, there are still many ways to minimize the cost of college. Your best bet is to apply for scholarships and financial aid (pro tip: you can negotiate the financial aid you receive!). Some other examples are: choose a small meal plan and a cheap housing option, buy or rent used textbooks, and earn money while in school.
A more educated employee becomes more valuable to an employer. So usually, the more educated you are, the more you will earn. Those with a high school diploma earn on average $1.30 million over their lifetimes, while those with a college degree earn $2.27 million. If you go on to a Professional degree, the average is $3.65 million.
You may be wondering: is paying $100,000 to $250,000 for a bachelor’s degree is worth it? Well, look at it as an investment. For $100,000 to $250,000, you could potentially be increasing the money you earn over your lifetime by $2.23-1.3 = $0.93 million, or $930,000. So, is a college education worth it? The answer is usually, yes.
Purchasing a home is one of the biggest financial decisions you will make in your life, but you must first consider the pros and cons. Home ownership is usually a good investment, but it also requires you to have a stable or growing income.
Some advantages of owning a home include the fact that houses tend to appreciate, or increase in value, meaning you might be able to sell your home for more than you purchased it. Also, there is a tax break for homeowners.
A disadvantage of owning a home is that having a mortgage can be more expensive than renting. There are extra expenses for homeownership such as a down payment, closing costs and moving expenses, as well as maintenance.
Some advantages of renting a home include greater flexibility, no large down payment, and the fact that your landlord is generally responsible for maintenance.
Some disadvantages of renting are that there’s no tax incentive, your rent may increase from year to year, and you don’t own the house after paying rent.
Buying a Home
Thinking of buying a home? Assuming you don’t have piles of cash lying around, you’ll want to first consider saving for the down payment (an initial payment made when taking out credit) and getting preapproved for a mortgage. You’ll need to figure out how much you can afford to pay and how much the bank will lend you (based on your credit score and debt to income ratio). It’s recommended that your down payment be at least 20% of the value of the home so you avoid having to get mortgage insurance. You should also factor in furniture and moving costs.
Next, you’ll want to make a list of things you need/want and do not want in a home. This will come in handy during your search. Make sure to take advantage of all the available options for finding homes on the market, including using a real estate agent, searching for listings online and driving around the neighborhoods that interest you in search of for-sale signs.
Once you’ve found the right home, it’s time to get serious! That means submitting an offer and signing a contract agreement with the sellers. Sellers might counteroffer on your price and contingencies. You can respond to the counteroffer or reject it and move on. Once an offer is accepted, you’ll sign a purchase agreement that includes the price of the home and estimated closing date.
Once you’ve made an offer that gets accepted, get a trained professional to inspect your potential new home for the quality, safety and overall condition. The home inspection will help you determine how to proceed with the closing process. If the home inspection reveals serious defects that the seller did not disclose, you might need to ask the seller for repairs or decide to back out of the deal if you have a contingency in the contract.
If everything seems alright with the house and you’re able to work out a deal with the seller, you’re ready to close! Things you’ll be dealing with and paying for in the final stages of your purchase may include having the home appraised, doing a title search, obtaining private mortgage insurance if your down payment is less than 20%, and completing mortgage paperwork.
Owning a Home
You’ve signed the papers, paid the movers, and the new place is starting to feel like home. Game over, right? Not quite! Many people make the mistake of thinking that their mortgage is the only major bill associated with homeownership. The fact is, as a homeowner, you also incur property taxes, homeowners insurance, maintenance, and repairs.
If you’ve ever rented, you’re likely accustomed to utility bills. However, chances are that some of them were built into your monthly rent. As a homeowner, you’ve got to pay for all the utilities such as heat, electricity, gas, sewer, water, trash, recycling, and electives such as cable and internet.
You’ll need to pay property taxes and homeowners insurance, which are often included in the monthly mortgage bill. Sometimes, property taxes could go up and increase monthly housing costs. Home insurance, which could be costly, depends on a variety of factors including the age and location of your home. Pretty often, these will rise over time.
A lot of things can go wrong with a house. The water heater could break down, or your roof could leak. As a renter, you would simply call your landlord, but as a homeowner, you are the one responsible. To hedge against any difficulties, you should keep a substantial cash reserve to cover any maintenance/repair costs, both routine and unexpected.
Owners need to cover an array of continuing expenses. This starts the very first year of ownership, and costs can vary widely, depending on your home and location. Be sure that you can easily make your monthly payments and still have money left over for travel, clothing, and occasional dinners that don’t come out of a microwave! And don’t forget that you have to get around somehow!
When shopping for a car it is important to set a budget and then compare all of your options within your price range. Research the reliability of your different options and get estimates about the costs of maintenance. Test-drive multiple cars and consider how many miles per gallon they can get.
When you decide on a car you want to buy, you have two options: you can either pay for the vehicle in full or you can finance the car over time with a loan. Keep in mind that you will have to pay interest on the loan, so financing increases the total cost of the car.
When buying a car you will most likely be able to negotiate the price down. Don’t be afraid to walk away if the salesperson is unwilling to negotiate the price. Be prepared and do your research on pricing before buying.
When using a loan to finance a car you must consider the loan amount (the total amount you’re borrowing to get the car), the annual percentage rate (APR), and the loan term (or the amount of time you have to pay back the loan amount). Make sure you know the total cost of the car and are prepared to pay back the loan with interest.
When you own a car, you will also have to pay for insurance and maintenance. Every car owner must have auto insurance, so be prepared to pay that expense. It is also important to properly maintain your car so that it retains its value.
Buying a Car
Thinking of buying a car? You’ll need to make a budget first, and assuming you don’t know what car you want yet, you can find out just about anything you want to know about a car online. Consumer Reports is a great place to start researching cars in your price range. Ensure you know the market value of the cars you’re looking at as this will come in handy once the price negotiations begin.
Once you know what you’re looking for, it’s crucial to get a preapproved car loan before you go any further in the car-buying process. Through preapproved financing, you’ll be able to get an idea of how much you can afford, and you’ll have an interest rate that you can then compare to the dealership’s financing. It’s important to get preapproved for the absolute maximum amount you are willing to spend on a vehicle or else you’ll have to reapply if you need more money.
Next, you should look through the online inventory of your local car dealerships. You can also use sites that cover an entire region or even the whole country. Once you’ve found some cars you like, you’ll need to test-drive them. You never want to buy a car (new or used) without a thorough test drive of the vehicle as the test drive is a great time to discover any issues with quality and comfort.
Remember that negotiation is key! Make sure you know whether you’re talking about the “out-the-door” price, which includes all taxes and fees, not just the sale price of the car, which will always appear to be lower. Buy based on purchase price not monthly payments, which will also appear to be lower. And finally, do everything you can to knock the purchase price down. Start with a ridiculously low number, and work backwards. Walk into the dealership with confidence, stick to your guns, and don’t feel bad about walking away from any offers.
If the price, financing, and fees look right, it’s time to seal the deal! The contract will include the agreed-on sales price and some additional fees. Take your time to review the contract and don’t let yourself be pressured into signing just to get it over with. Some dealerships include bogus fees just to boost profit. If a fee in the contract can’t be explained to your satisfaction, ask to have it removed.
Whether it’s college, a home, or your dream wedding, you need to plan ahead for these large expenses.
Throughout your life, you will face many large expenditures, such as going to college, getting married, or buying a car. When facing one of these, it is essential that you think through every single cost associated with it. Take out a tablet or paper and tally every single cost that you might have to pay.
There are many costs that go into a college education. The largest is the tuition, what’s paid to the institution. In 2019, the average tuition per year for U.S. public universities was $9,970 for in-state and $25,620 for out-of-state and for private universities it was $34,740.
Unfortunately, tuition isn’t the only cost. The average cost per year for room and board was $10,800, for books and supplies: $1,250, for transportation: $1,170, and for other expenses: $2,100. This brings the total cost of one year of college up to $25,290 and $40,940 for in- and out-of-state public colleges and $50,900 for private universities.
Another large expense you may face eventually is a wedding. The national average cost of a wedding in the U.S. is $30,000, but the average cost of one depends on where you live. For example, in Mississippi, the average is "just" $12,769, while in New York City, the average is a whopping $88,176.
You might like the idea of buying a new car, but do you know its costs? Depreciation is the key to comparing new and used cars. New cars depreciate much faster than older cars. As soon as you buy a new car, it will lose 20% of its value. In fact, buying slightly used cars throughout your life can save you around $130,000!
Regardless of which route you choose, it’s important to budget for these and other major life events.
Budgeting for Life Events
Although planning for a baby, a child’s education or aging parents may seem like a distant thought, it’s best to be prepared before it approaches. If you want to reduce the financial stress of these life events, start preparing a budget as soon as possible!
Raising a child is a wonderful experience but it’s certainly not cheap! Parents have spent at least $12,000 just in the baby’s first year! Before the baby comes, start budgeting around $150-$300 a month to cover some basic expenses: food, clothing, healthcare, childcare, and A LOT of diapers. Also, accepting donations is a great way to save money!
The sooner you start saving for your child’s educational future, the better! The first step is to open a college savings account. Next, determine how much of your budget you can devote monthly to college savings. This can be as much as you desire, and you can even ask relatives to contribute. You can also invest money in a 529 savings plan.
A 529 savings plan is an investment account that allows a person to make after-tax contributions on behalf of their chosen beneficiary. A parent can use this plan to have their contributions grow tax-deferred until the money is needed to pay for a child’s college expenses. In addition, the withdrawal of the money will be tax-free!
Your parents have taken care of you for most of your life, but now it’s your turn! When preparing a budget, you need to estimate their living expenses and review their retirement savings, Social Security, pensions and other sources of income. Then assess if they can live on their own to determine if assisted living or in-home care is necessary.
Life comes at you fast, but you can still remain ahead of the curve! Planning ahead for major expenses will help you make the best financial decisions, which will ultimately impact your life and your future!