If there's one place family, money, and love converge into an emotional Bermuda Triangle where common sense disappears, it is the wedding.
"It is an industry that profits from your dreams and expectations," says Mary Claire Allvine, CFP and principal at Brownson Rehmus & Foxworth, and author of "The 10 Most Important Money Decisions You'll Ever Make."
Some $23 billion will be spent on weddings in 2011 — and that's just the event itself. Add another $19 billion on gifts and $8 billion on honeymoons and it is the $50 billion juggernaut according to renowned wedding industry researchers Denise and Alan Fields, authors of “Bridal Bargains.”
Allvine, who specializes in advising married couples, says, “It's the most manipulative process."
This manipulation is based on an inelastic demand function. Vendors bet on your expectation that this is the only time you'll do this in your life-and they price accordingly.
So, if you're about to get married, long before you say, " I do", say "I see". According to Sue Totterdale, Board Chairman of the National Association of Wedding Professionals, American weddings currently average between $27,000 – $35,000.
Start saving and learn exactly what it is you are paying for.
Before You Pop the Question
The engagement ring is just the first of many financial hills you'll have to climb or circumvent as a couple.
Hopeful grooms should brush up on their knowledge of gemology. There’s a whole world of choice out there. This is a purchase you want to make wisely in order to avoid scams.
Check out www.BlueNile.com, one of the largest online retailers of engagement rings. The “Education” tab breaks down the 4 “Cs” – cut, color, clarity and carats.
Mark Michaels, VP of Michaels Jewelers says, “Cut is the most important feature of the 4 C’s. The quality of the cut affects the light performance – its sparkle.” What’s more, the cut of the stone can add or subtract up to 50 percent of the stone’s value.
As to how to avoid scams, Michaels says: “Get whoever you buy a diamond from in writing defining the quality using either AGS, or GIA, grading terms on the sales voucher.” (The Gemological Institute of America, GIA, and the American Gem Society Laboratories, AGSL, dictate industry standards.)
Allvine is among the many who say the budget for a wedding is as important a financial decision as buying a home, or car. Unfortunately, she says, people don't treat it that way.
Your wedding budget needs to fit into the picture of your overall financial goals.
"If you don't sit and have that conversation, you have missed an opportunity. Any time you're going to spend big money, see if you're on the same page with trade offs. Say, for the cost of this wedding, we could-fill in the blank," she adds.
While we know wedding costs can spiral out of control, capping the budget is ultimately very doable.
The most common budget pitfall, according to Allvine is not ever asking for input from your parents. She says, "The human pitfall [is that] someone else's money seems free - particularly parental money. Many times couples want to know, would their parents otherwise help them buy a home? Young couples don't ask their parents this question: Would you help seed our life together rather than pay for a wedding?"
The Marriage Penalty
Uncle Sam probably wasn't at your wedding, but you'll have to deal with him once you're married.
Married couples are a combined financial entity as far as the government is concerned. As such, you and your spouse will face some income-tax adjustments. You can choose to file jointly or separately as a married
John Hewitt, founder and CEO of Liberty Tax Service, says that filing separately is rarely the way to go.
"Its almost always better to file jointly, unless it's a weird situation. If you think you're spouse was committing fraud – you wouldn't want to sign their return," he says. "Or if one person has significant medical expenses-more than 20-25 percent of their income-and the other has none. These are rare situations," he says.
Whether you file jointly or separately, either way, you'll pay more taxes as a married person. In America it's cheaper-strictly from a tax code perspective- to be single. The “marriage penalty” originated in 1969, when Congress tried to eliminate what was then an advantage for couples.
Currently, the marriage penalty affects taxpayers who jointly earn $156,000 or more. The chart below compares what single-filers and married filers will pay this year.
You’ll see from this chart that the marriage penalty does not kick in until you’ve past the $150,000 level of total income.
Keep Something Separate
While you may, at this point, be wondering what happened to your identity — don't worry, you will still receive your very own credit report.
"The old-fashion rule is you don't want to drop your own credit. You want to keep it separate. I often do see that one has troubles, and the other does not," says Allvine.
With separate accounts, your sweetheart’s past credit history has no impact on your credit profile. Only when you open a joint account will information be shared on both credit reports – usually when you plan that first big purchase. For instance, if you buy a home together, your spouse’s negative credit history could impact your mortgage rates. Work to improve it before you buy.
"You can't consolidate into one person's credit. So don't let it be a surprise. Share your credit reports, and divide up payment duties ahead of time — before you get into the marriage and discover it's too late," says Allvine.
So, dear nearly-weds, its kitchen table time. Bring your budgets, credit reports and tax forms, sit down together and create your joint venture.