Rules for a Valentine's Day proposal

Rules for a Valentine's Day proposal

Are you hoping for a Valentine’s Day proposal – or planning one?

Research shows that around the world, Valentine’s Day is one of the most popular days to pop the question, ahead of the bride’s birthday, Christmas and the New Year.

Whether you’re planning to get down on one knee or be surprised by your other half, the purchases you make in the coming months – from the engagement ring to the reception and honeymoon – will be some of the biggest you will make together.

Reports suggest the average cost of an Aussie wedding varies – IBISWorld says $36,700 on average, while Bride to Be Magazine says the figure is closer to $48,296.

Either way, “It’s an expensive bloody day,” writes Scott Pape, financial commentator and newlywed, in his blog for the Barefoot Investor.

The day is made even more costly, he says, when expenses are whacked on credit.

“I’ve interviewed a woman whose $40,000 wedding debt lasted longer than her marriage, and I’ve reprimanded Bridezillas who spent a house deposit getting hitched.”

With that in mind, here are a few simple money rules to guide you through the proposal and beyond, so you can start your new life without the burden of debt.

The ring

How much you spend on a ring will obviously be a personal matter, but you will no doubt hear that one-to-two-months’ salary is the norm. Others say the ring should cost about 10 percent of the wedding bill.

But as priorities change, those “rules” become increasingly irrelevant, according to former jewellery dealer-turned-consumer psychologist, Kit Yarrow.

“A lot of women wouldn’t want their financé to spend that much on a ring,” she told men’s website AskMen.com.

Research indicates this to be true; Australian women are less concerned about the diamond and more focused on financial security and saving for the future.

Last year, online retailer OO.com.au found 70 percent of Australian women would like a great-looking engagement ring, but would prefer guys save for a house deposit or honeymoon than a big diamond.

“If you can do without the famous blue Tiffany’s box, you can save fortune,” said Pape. “I bought my rock online.”

The big day

The ring isn’t the only cost to budget for, of course. From the flowers and cake to the photographer and venue, it’s easy to run up wedding bills and justify the costs with reason such as “It’s a once in a lifetime event” or “that’s just how much it costs to get married”.

Pape recommends couples discuss what is important for their day, write it down and use it as a reference.

“Once we had our list, we hired our wedding planner – but not one of those spendthrift fairies you see in the movies. We gave her our budget and paid her an hourly fee to arrange and negotiate everything – and, importantly, to bring it all under budget,” he said.

The best way to fund a wedding is to save up and pay cash, said Michelle Hutchison, spokeswoman for RateCity.

“That way you won’t pay interest on your big day, making it easier to keep costs under control,” she said.

“If you’ve got a small amount to start with, and are disciplined enough to add to your savings pile every month, then an online savings account can be a great option.”

By depositing $1000 into a high interest savings account at a rate of say 4 percent, and each adding $250 per month, within two years the final balance will have grown to over $12,000, she said.

“Saving together can also be a great way to test the financial waters before you jump in with an even bigger commitment, such as home loan.”

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Learn more about savings accounts

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.