The (new) rules of engagement

The (new) rules of engagement

It’s the season for family gatherings, holiday shopping, and for some, marriage proposals. According to a survey by the Fairchild Bridal Group, which publishes Modern Bride magazine, 26 percent of marriage proposals happen in November and December.

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

Depending on whom you’re asking, the average cost of a wedding in Australia this year is between $36,700 (IBISWorld), and $48,296 (Bride To Be Magazine).

“It’s a bloody expensive day,” writes Scott Pape, financial commentator and groom-to-be, in his blog for The Barefoot Investor.

“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 rules to ensure you get the best value for your hard-earned money, while still having the day you both cherish for years to come.

The engagement ring

If you believe the experts, the ring will cost about 10 percent of the wedding bill.

But as priorities shift, that rule has fallen out of favour, according to Kit Yarrow, a former jewellery dealer-turned-consumer psychologist.

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

Research supports this view; Australian women are thinking more about their financial future and less about the diamond.

One study by online retailer OO.com.au found that 70 percent of Australian women would like a great-looking engagement ring, but would prefer guys not to splash out on a really expensive piece of jewellery and instead use the money to save for a house deposit or honeymoon.

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

The wedding fund

“The bride industry is bigger than the beer industry – and with good reason: slap “wedding” in front of anything and it costs double or more,” he added.

From the cost of flowers and cake to the photographer and venue, it’s easy to get carried away and justify huge costs with reasoning such as, “it’s a once in a lifetime event” or “that’s just how much it costs to get married”.

Pape advises couples to ask themselves what’s important for their day and then write it down.

“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 in under budget,” he said.

Then it’s time to start saving, because there’s perhaps nothing worse than whacking the day on a credit card and starting married life in debt, said Michelle Hutchison, spokeswoman for RateCity.

“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,” she said.

Depositing $1000 into a high interest savings account at a rate of say 5.5 percent, adding $250 per month, within three years the final balance will have grown to over $10,000.

“If guys can afford to save a bit more in the lead up to the proposal, say $500 each month, you’ll have your ring fund in less than two years,” she said.

LBW (life beyond wedding)

According to Pape, an engagement marks the start of a five-year period known as the “triple Ms”: first the marriage, then the mortgage, then the midgets.

“So think of your wedding as costing you a third of the entire transaction – and spend accordingly,” he said.

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Learn more about savings accounts

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.

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.

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 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.

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 can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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.

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 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

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 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.