Article by Katie Conroy
If you’ve received a pocketful of cash from your generous wedding guests, it’s a smart idea to put it to good use. While you can use a part of it towards pampering yourself, this article will explore four savvy ways to spend your wedding gift money.
Pay Off Debt
Make a list of the various types of debt you need to repay and utilize the money towards paying off the high-interest ones. These typically include student loans, and credit card debt. Making bigger repayments on these will result in you becoming debt-free sooner, and paying less total interest.
Additionally, if you were planning to undertake debt in the near future for home repairs, or personal reasons, opt to utilize your gift money instead. By paying off debt early, you’ll increase your credit score and have greater spending power in the long run.
Create an Emergency Fund
As reported by CNBC, up to 51% of Americans report having insufficient funds for a rainy day. While 26% disclose not having enough funds to cover three months’ worth of expenses, the other 25% report having no emergency savings at all. Ideally, experts recommend having enough funds to cover 3-6 months of expenses.
While no one can predict unforeseen circumstances, having an emergency fund will safeguard you from facing financial difficulty. For those starting an emergency fund from scratch, opening a high-yield savings account is the best option. But, if you already have a good amount of savings, consider transferring your funds into a money market account, or a certificate of deposit (CD), as these will provide higher returns.
Invest in a Home
If becoming homeowners is one of your couple goals, your wedding gift money can bring you one step closer to achieving it. Providing a large down payment is one of the main factors for affording a home. Not only will a good down payment help you secure better mortgage terms, but also make a strong impression on sellers and increase the chances of securing your dream home. Ideally, lenders expect a down payment equivalent to 10-20% of the home’s purchase price.
If you already own a home, the money can be used towards necessary remodeling projects. As reported by Home Guides, the average cost of remodeling varies between $19,000-$75,000. This is a substantial amount that would normally require taking on some type of debt. Create a timeline for your remodeling goals and use the gift money towards affording it.
Start a Retirement Fund
While retirement can seem far away, it’s never too early to start saving for it. One of the best ways to build a retirement fund is by opening a Roth IRA account. Historically, these accounts have provided annual returns between 7-10% which is significantly higher than what you’ll receive in a simple savings account.
Additionally, by starting early, you’ll set yourself up for success by harnessing the power of compound interest. Each year your account will earn interest, which will then be added to your principal amount. For the next year, the interest will be calculated on the new, higher amount and this process will continue until you choose to withdraw your funds.
Currently, the yearly IRA contributions are capped at $6000. Depending on the gift amount you’ve received, you could max out the contribution and start your journey towards a financially healthy retirement.
A common step you’ll need to undertake for all of these options is to create a budget. Rather than trying to manually manage an excel sheet, choose to use a budgeting app. Most budgeting apps are simple to use and will help create financial goals and guide you towards achieving them. For instance, if you choose to start an emergency fund, through the app you can set reminders for making monthly contributions. Additionally, for debt management, you can use a loans API that provides real-time information regarding all your loans and repayment requirements.
Utilizing your gift money for any of these options will bring you one step closer to financial independence and start this new chapter of your life on the right foot.
For more great wedding advice and tips, check out some of our recent articles like: Prep Tips for a Home Wedding on a Budget, A Bride-To-Be’s Guide to Choosing a Wedding Venue, or How Not to Shed Tears on Your Wedding Day