A honeymoon can be a magical time during which you explore the world with your new spouse. But, it can also be expensive -- especially if you don't want to settle for anything less than a dream trip you'll remember forever. In fact, while the average cost of a honeymoon in 2021 came in at $4,600, many people spend much more.
If you don't want to end up in debt to cover your honeymoon expenses, investing for this trip can help ensure you have the money needed for an amazing time. If you're not sure how to do that, just follow these four steps.
Image source: Getty Images.
1. Set your honeymoon budget
To invest enough to pay for your perfect honeymoon, you must know how much money you're going to need.
You can research travel expenses including flight costs, lodging, and expenses associated with a rental vehicle. Don't forget to also plan for plenty of spending money once you're there so you can enjoy restaurants, excursions, and splurges.
2. Decide on your investing timeline
You'll also have to think about when you need the money in order to leave on your trip. If you start planning several years in advance, that will give you more time to save up the funds while contributing a reasonable amount on a monthly basis.
Thinking about your timeline is also important to assess your investing options. The best way to earn generous returns is to put your money into the stock market. But, when you invest in the market, you face a risk of losses.
If you have a long enough time horizon -- usually around two to five years -- you reduce this risk since you have time to wait out downturns. But if you're going on your honeymoon next year, the market may not be the best place for your honeymoon fund since you could end up forced to take money out during a market downturn before you've made any money if you have bad timing.
You don't want to end up withdrawing less than you put into your honeymoon fund simply because you bought right before a dip and don't have time to wait for a recovery.
3. Assess your level of risk tolerance and pick investments
You'll also need to think about how much risk you're willing to take on with your honeymoon funds when investing to cover the costs of your trip.
Safe investments tend to produce lower potential returns than riskier ones, so there's a trade-off to consider. You'll have to save more if you plan to put your money into something like a certificate of deposit, which presents no risk of loss, versus an S&P 500 index fund, which has limited risk of loss over the long term, versus individual stocks, with which the risk of loss varies but is higher than the other options. That's because a CD has a lower potential return on investment (ROI) than an S&P fund, which has a lower potential ROI than individual company shares.
Your timeline will help shape the level of risk you can take. If you're really thinking ahead and starting to save for a dream honeymoon years before you take it, consider an S&P fund or even individual stock shares since you have time to recover from any possible losses. But if you're departing six months from now, a high-yield savings account or a CD where you can't lose money are likely better choices.
4. Invest the required amount each month
Finally, once you know your potential ROI, the amount of money you need, and your timeline, you can calculate exactly how much you must invest each month to hit your target. Set up an automatic transfer to your bank or brokerage account for that amount and start dreaming of your magical trip.
