Rishika has always wanted a destination wedding at the beach since when she was 10 years old. Now that she has started to earn, she wanted to assist her parents in funding her wedding. She knew that a destination wedding will cost a fortune, so she wanted to start building a corpus towards it early on.
She reached out to her financial planner to estimate the cost of a wedding in Goa, and to set out a plan.
Identifying Costs
When it comes to planning a wedding, the first step is to identify how much it costs. There are different heads of expenses related to weddings – Venue, decoration charges, cost of dining and stay, wedding dresses for self and family, photographers, makeup artists, DJs, etc. You would also need to set up a separate fund for purchasing gold jewellery if required.
Since Rishika’s parents had already accumulated some gold ornaments which they want to bequeath her, her focus now is on saving up for other expenses. Rishika estimates that the wedding would cost her around Rs. 40 lakhs. Her parents had set up a fund when she was younger. The fund is worth approx. Rs. 15 lakhs now. Rashika now needs to work towards the rest of the corpus.
Adjusting for Inflation
Rishika is 21 years old, and she plans to get married after 5 years. At a rate of inflation of 10%, the wedding would cost approximately 40 Lakhs (assuming only Rishika’s portion of expenses (i.e.) 25 Lakhs). It is important to understand that different categories of expenses will have different rates of inflation. It is advised to keep gold separate from other expenses.
Choosing the Right Asset Allocation Strategy
Asset allocation plays a major role in how your portfolio performs. While choosing investments, it is important to consider your risk capacity, goal timeline, and also which investment product can take you closer to achieving this goal.
Aggressive asset classes such as equity require a longer horizon to yield a high return on investments. Since Rishika’s wedding is 5 years away, equity can be included in the asset mix, but the exposure should be limited to a maximum of 70%. Remaining to be spread across debt, and gold asset classes.
Consider Your Other Goals
Planning for a wedding is a very personal decision, and a customised approach should be followed keeping in mind your other financial goals. Since a wedding constitutes one of the major expenses in your financial journey, it must be planned with care. It is important to list down your other goals and prioritize them before splurging on the wedding. In Rishika’s case, she has her parent’s support to fund the wedding, and her only other goal is retirement for which she already has investments in place.
If any of your high-priority goals such as children’s education and retirement are unmet because of funding a big fat wedding, it is prudent to take a step back and revise the wedding expenses.
Avoid Falling into the Debt Trap
It might be convenient to take that personal loan to fund your dream wedding but stop and think through your decision. Getting married is one of the happiest moments in one’s life and taking a loan that you might not be able to service later will result in a bitter experience. Planning ahead for a wedding should be sufficient to meet the requirement, in cases of shortfall reassess your expenses and try to cut down on discretionary ones. Only in unavoidable situations, you should be thinking about taking a loan.
When it comes to taking a loan for the wedding, there are a few options available such as wedding loans (this is a personal loan but given only for wedding-related expenses), loans from retirement funds such as PF, other unsecured loans, etc. It is important to assess the interest rates, and other aspects related to each of the loans and take an informed decision. Even in such cases, never opt for a loan which is beyond your capacity.
Rishika was able to save up for her wedding with a little help from her parents and make her dream wedding come true by choosing the right plan to fund the cost. As with any financial goal, starting early and having a financial plan in place, and frequent monitoring of the progress will help you in reaching your goals, without falling into the debt trap.