June 21, 2012 at 9:54 AM ET
Newlyweds are entering their lives with a much different set of experiences than those of a generation before.
It’s more common than ever for people to cohabit before marriage now, and many are getting married later in life. Couples are relying more on their own finances to pay for a wedding, rather than the event being paid for by their families, and gift-giving practices have even changed as well.
Most newlyweds are already equipped with household wares; indeed, they may have an overabundance of kitchen supplies, electronics, bedding and other common wedding gifts. More and more often, couples are requesting a gift of the one thing they need most: money.
Not so long ago, offering cash as a gift was a social faux pas. Now, however, as couples struggle to build their new life against the backdrop of a meager economy, gifts of cash are well-received. Marriage represents more than a union of two people; it’s also the gateway into a new institution that’s governed as much by finances as emotion. Put simply, a marriage founded on shoddy finances is as unstable as any business enterprise, and for young couples, every dollar truly counts.
Making the most of wedding gift cash
As a newlywed, you’re bound to get a lot of money amid your other gifts, whether you specifically ask for it or not. For some people, this sudden influx of cash can be exhilarating. Instead of giving in to the sudden temptation to go on a massive shopping spree, however, you need to carefully consider what to do with the money. By properly investing the cash that you receive, you can build a nest egg that can help sustain you throughout your marriage, rather than running dry a week after your wedding.
5 smart ways to spend your wedding cash
1. Paying off debt
Since most couples pay for their own weddings, they often enter their marriage carrying ample debt. Of course, smart wedding planning alleviates some of this, and it’s very trendy right now for couples to reduce costs by holding casual affairs, having DIY weddings or dramatically slashing the guest list.
Even if a couple manages to evade debt for the wedding itself, however, most couples enter their new life with substantial debt. Student loans, medical bills, consumer debt and other expenses can impact a person’s credit, and those debts magnify when households are combined.
The faster you can pay off this debt, the sooner you will be able to qualify for a mortgage, buy a new car and save seriously for your retirement. It will also save you money in the long run as you avoid interest fees. If you have too much debt to consider paying off entirely with your wedding money, find the most toxic debt and destroy it first. For most people, this means paying off high-interest credit cards or loans rather than trying to pay off student loan debt or other long-term loans.
2. Saving for the future
The best part about money is that it can be used to make more money by investing it in an interest-bearing account. One of the securest investments you can make is a certificate of deposit. This is much more secure than stocks or other investments, but the interest rate is higher than with a regular savings account. You simply place the money in the CD and wait until it has matured, then receive your initial principal plus interest.
To maximize your savings, augment the wedding money with regular payments from your paychecks. Set aside a certain amount of money from each check and add it to the principal every time you cash your CD. This will ensure that you have an ever-growing savings with maximum interest and minimal cost. When you start, you can choose a short-term CD for a few months, then choose longer periods in the future.
The other benefit of having a CD is that it’s very flexible. You can choose the duration of the CD and use the money however you’d like. This allows you to put money aside for a house, vacation, your children’s college fund or whatever else is important to you.
3. Start an IRA
It’s never too early to plan for your retirement, and with fewer jobs offering pension plans, individuals must make their own financial arrangements. Rather than investing all of the wedding money into CDs, a couple might choose to open an IRA or 401k accounts. Employers will usually match the money invested in retirement accounts, and the funds are untaxed until they’re paid out.
If you do choose this investment, bear in mind that it will require two separate accounts as retirement accounts are for individuals, not couples. A wedding is a good time to consider retirement, however, as weddings are ideally a symbol of eternity, and planning for old age and retirement together can help solidify a couple’s bond while putting money to pragmatic use.
4. Buy a house
For couples who would rather live in the here-and-now, using the money from a wedding toward buying a new home can be a wise idea. Depending on the size of the gifts and the amount of guests, cash from a wedding can help form a down payment on a home. Houses are the most expensive purchase most people will make in their lives, and buying a first home is often the first step toward forming a new life together that a couple takes.
Don’t allow excitement to exceed reason when buying a new house. Be sure that your finances are in order first. You’ll want to pay off as much debt as possible prior to applying for a mortgage, and ensure that you have enough money budgeted to cover a house payment. If buying a home isn’t possible right away, go ahead and invest the money in a CD for a year or two and re-visit the plan later after you’ve been able to save up.
5. Buy something nice together
Marriage isn’t only about investments in the future. It’s perfectly acceptable to spend some of the money from gifts in buying something nice together. Indeed, many frugal couples may be so accustomed to buying second-hand or bargain bin goods that they don’t realize how nice it can be to splurge.
Assess your money and see if you can make room for a single nice, practical-but-luxurious purchase such as a TV or high-quality bed. By choosing something that can enjoy together for a long time, you’re also making an investment in your future.
It’s up to each individual couple to determine what the best use of wedding gift money is. This can depend on how much is received, the couple’s needs, future plans and more. At the very least you need to speak about this with each other well before getting married. As long couples consider all their options carefully before proceeding, they can usually make the most of the gifts to launch their new life together.
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