Today, we’re going to dive into a topic that’s both exciting and practical – how to invest your wedding gifts for a prosperous future as a newlywed couple. Whether you’re anticipating a modest cash influx from your generous guests or you’re fortunate enough to be receiving a substantial sum from the parental units, you might find yourself wondering what the best course of action is for that nest egg. Do you pay off debt? Should you start that emergency fund you’ve been hearing about? Or perhaps you’re contemplating saving for a down payment on your dream home? Not to mention, the intriguing question of how a prenuptial agreement might address wedding gifts. As you can see, there’s a multitude of facets to explore, and we’re here to guide you. Let’s dive right in!
Aligning Your Financial Goals
First and foremost, as newlyweds, it’s crucial to align your financial goals. Everything from having children to budgets to what to do with wedding gifts. This is a conversation that sets the stage for responsible financial planning. Discuss your short-term objectives, like a down payment for a house or a dream wedding, as well as your long-term goals, such as retirement planning and investment strategies. Ensuring that you’re both on the same page is essential for making the first step into a long-lasting marriage.
But how do you go about aligning your financial goals with your future spouse? A prenup, of course! That’s right, a prenup can help you and your partner align on future financial goals. Former MA Divorce Attorney and CEO of HelloPrenup, Julia Rodgers, says that the number one reason people get divorced is because they aren’t on the same page as one another (one is a spender, one is a saver; one wants kids, the other doesn’t, that sort of thing). With a prenup, you are “forced” to get on the same page by agreeing to certain financial terms that take place DURING your marriage. For example, in a prenup, you may include clauses about budgeting and spending during the marriage, who pays for what, stipulations having children, what to do with the wedding gifts you receive, etc.
The bottom line is that you two should make sure you are aligned on all financial goals, but also make sure to discuss wedding gifts! Making sure you both are on the same page with what to do with wedding gifts is a great first step into marriage, and a way to avoid future conflict!
Building Your Emergency Fund
Now, let’s turn to a little something known as the emergency fund. When you receive money from your wedding, you might want to consider allocating a portion of it to build or reinforce your emergency fund. The law of financial responsibility dictates that having at least three to six months’ worth of living expenses tucked away is essential. A high-yield savings account, a money market account, or a short-term certificate of deposit (CD) is the prudent way to house these funds for easy access in case of unforeseen emergencies.
We can’t discuss financial health without addressing outstanding debts. If you and your future spouse have debts, such as credit card balances or student loans, it is financially savvy to use part of your wedding gifts to pay them off. Reducing your debt alleviates financial stress, reduces interest payments, and frees up more of your income for future investments.
However, if you have a very low interest rate on your debt, such as 3%-4% or less, it may make more financial sense to prioritize investing in opportunities that offer a higher return rather than aggressively paying off the debt. This strategy is based on the principle that your investments have the potential to generate greater returns than the interest you’re paying on your debt.
In the realm of financial stability, long-term investments are like the bedrock upon which your financial fortress is built. It’s not just a good idea; it’s a great one. It’s a financially strategic move to open a brokerage account. A brokerage account, often referred to simply as a “brokerage,” is a financial account that individuals or married couples open with a brokerage firm. It serves as a platform for buying, selling, and holding various financial assets, primarily securities such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other investment instruments. The goal for investing in a brokerage account can be retirement or large life events. The beauty of long-term investments lies in their ability to harness the power of compounding interest over time (hint: the rule of 72), potentially turning your financial dreams into reality.
Once your brokerage account is up and running, it’s time to delve into the world of diversified portfolios. Diversification is the secret sauce that helps manage risk in your investment strategy. Consider building a mix of stocks and bonds in your portfolio. Stocks offer the potential for long-term growth, while bonds provide stability and income. The exact balance between these assets can be tailored to your risk tolerance and investment horizon. Are you both comfortable with a bit more risk for the potential of higher returns, or do you lean towards a more conservative approach? Your answer will guide your asset allocation decisions.
Real Estate Investments
If you’re contemplating the exciting journey of homeownership, whether it’s purchasing your dream home or investing in real estate for rental income, your wedding gifts can play a vital role in making this dream a reality. Money from your wedding gifts can be strategically used for a down payment or to cover other various home-related expenses. Buying a house is a huge undertaking that often comes with substantial costs, from the down payment and closing costs to ongoing maintenance and furnishings. Your wedding gifts can significantly ease the financial burden, providing you with the stability and financial confidence needed to start this new chapter of your life. It’s not just about purchasing a property; it’s about securing your future and/or creating a comfortable and beautiful space where you can build your life together.
Education and Skill Building
Investing in yourselves is always a smart move. Furthering your education or acquiring new skills may not provide immediate financial returns, but it can lead to higher earning potential in the long run. You may consider using your wedding gifts for tuition, workshops, or courses to enhance your careers. For example, maybe you’ve always dreamed of going back to medical school to become a doctor, but you’ve never had the funds to do it. With a wedding gift, that dream may become a reality. The investment in your schooling has the potential to give you a huge return down the road with a higher salary and more satisfactory career choice.
Wedding Gifts in Your Prenup
Did you know you can include what to do with any wedding gifts you receive in your prenup? That’s right! Wedding gifts are technically given to you AFTER you’re already married, so, by law, they are considered marital/community property. Without a prenup, those wedding gifts are fair game in a divorce. However, with a prenup, you can ensure that what you receive is treated how you wish, should the marriage come to an end. For example, do you want to keep it 50/50 or keep it separate or some other creative outcome? Talking about this topic in the prenup process is another great way to align expectations to make sure you’re both on the same page.
The Bottom Line
In conclusion, your wedding gifts are not just tokens of love and best wishes; they’re a financial opportunity to secure your future as a couple. By using your wedding gifts to invest, you are creating a marital foundation together that can last a lifetime! From creating your first emergency fund to paying down debt to investing in yourselves, there are so many different ways to use that money. Cheers to a prosperous financial journey as newlyweds!
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: [email protected]