Sunday night at 9pm I chatted to Dale Curd (host of Guy Talk on Newstalk 1010) about money and weddings. On the show I threw out a simple alternative to the traditional notion of a wedding. A traditional wedding can easily run $35,000 in Toronto, with the average being between $20,000 and $30,000 across Canada. I’ve heard of six-figure weddings and I’ve attended weddings that cost less than $3,000. I’m using the $35,000 number for this example.
For those that were interested, here is the example I spoke about on the show:
The Base Case: $35,000 for a wedding
If we assume the couple finances this at 5% for 7 years, they are going to pay roughly $500/month. I’m going to assume that once the debt is paid, they put the $500 monthly payment towards an investment portfolio that grows at 5% and when we check in on it 35 after the wedding we find that the portfolio may be worth approximately $360,000.
The Alternative: $5,000 for a wedding and ongoing celebrations
What if the couple had a $5,000 wedding? If we assume they finance this as well and take 7 years to pay it off at 5% their monthly payment is approximately $70. Further, let’s just suppose that the $430/month they are saving versus the base case is put towards the investment portfolio which, just as above, is growing at 5%/year.
At year 5, they will have roughly $30,000 saved. Let’s say they take out $5,000 for a second honeymoon, and maybe a bigger ring?
At year 10, they will have roughly $66,000 saved. Let’s say they take out $10,000 for a third honeymoon, and an even bigger ring?
At year 15, they will have roughly $105,000 saved. Let’s say they take out $15,000 for a fourth honeymoon, and a boulder-sized ring?
Now we fast forward to year 35. They have $440,000 saved.
What’s The Difference?
In the Alternative Case, the couple (all other things being equal) have $80,000 more money and have less financial risk over the 35 years. If the marriage didn’t make it to 5 years, there would be less money invested in the failed marriage. As the marriage becomes more successful, it is celebrated accordingly.
With 52% of marriages ending in divorce, technically *most* marriages fail. Of course everyone goes into marriage insisting they will beat the odds. But given that you are potentially spending a very large amount of money for one day, at a time when you are probably already laden with debt (just finished school, first job, first house, maybe a baby in the near future) this is very risky, no matter how unromantic the notion. Instead of front-loading the costs of celebrating your union, it would make more sense to spread out those costs over time after having actually reached significant milestones.
There are a few assumptions, but for the most part the variable ones cancel out as they apply to both situations:
- The portfolio may grow faster/slower than 5%
- The portfolio does not grow at a straight-lined 5%
- Inflation is not factored in
For the most part, these things cancel out.
I would argue (not being married, mind you) that what you remember about your wedding day is how your spouse looked, and if something went wrong. You probably won’t remember 35 years later exactly how the invitations looked, how the room was decorated, what songs were played, etc. Dale mentioned that second marriages tend to have lower costs – do you think those marriages are any less special? Probably not.