How To Finance Your Bar or Bat Mitzvah


The caviar killed it.

Actually, the caviar had some help: 200 out-of-season Casablanca lillies and 150 Dupioni silk napkins. Their victim? A Connecticut family’s Bar Mitzvah budget.

“I got so caught up in having the ‘dream Bar Mitzvah’ I lost sight of the overall picture,” confesses this mom. “The exotic flowers, the special napkins, the caviar station … I just got carried away.”

Like many first-time B Mitzvah parents, she had a vague budget in mind but quickly lost sight of it, failing to notice costs creeping skyward as she fell for item after item that seemed, at the time, like party do-or-dies.



She also made another novice’s mistake: “I forgot to factor in all the tax and tips,” she says.

In the end, the family went more than $15,000 over budget. Fortunately, they had the resources to cover the overrun. Unfortunately, that money was sitting in their retirement account, which imposes hefty penalties for early withdrawals.

Had this mom created a spreadsheet, updating it with each new expense, she surely would have seen her budget blowup. Keeping a vigilant eye on your total cost is just one of the budgeting best practices all professional event planners use; after all, their jobs and reputations depend on staying within their clients’ budgets. Click here to learn how to budget like a pro .

Meanwhile, whether you’re gaping at a whopper of a bill the day after – or planning an upcoming event and want more funds to play with, certified financial planners say there are several ways to creatively finance your B Mitzvah. Read on to learn more about the pros and cons of all your options.

Bank Loans
Believe it or not, many banks now have loan programs designed for special events such as weddings and B Mitzvahs. These programs allow qualified families, whose income and credit pass muster, to borrow up to $25,000 to throw an affair.

We’ve also seen offers for wedding loans as high as $50,000, with 8.5% APR. As with most loans, there can be varying annual fees and penalties for prepayment.

Remember that such bank loans are one of your pricier options since your interest payments can add up significantly over time. Of course, compared to borrowing on your credit cards, which can have even higher interest rates (which average about 14.5 percent), bank loans are certainly worth considering.

Loans from Family or Friends
Say you’ve whittled your budget down to the lowest you’re willing to go and you still don’t have the cash to make it happen. Then you notice your parents have just returned from their luxury vacation only to buy yet another luxury car. Hmmmm. Should you ask them for a loan? It can seem so tempting: no credit checks, no prepayment penalities, probably no interest either, you figure. But trust us when we say this is an option to be taken at great peril. We know of several relationships between family members that have been destroyed thanks to loans turned bad. For instance, one man thought his aunt was giving him a $5,000 gift; that aunt insists she was granting a loan. Years later, the aunt is so angry she avoids all family events her nephew attends. Elsewhere, a woman borrowed an even larger sum from her brother, promising to repay him in 12 months; five years later, the brother is still awaiting repayment. His sister guiltily avoids his calls and e-mails.

If you want to avoid such unhappy endings, we strongly suggest putting all terms in writing, with formal, clearly defined repayment arrangements as well as penalties for missed payments. It’s a good idea to work with a third party, too, such as CircleLending.com, which has devised a respected, innovative way to protect personal relationships when borrowing. Check out their plan called Handshake Plus.

Pay as you go
Perhaps the best way to stay out of debt is what’s called pay-as-you-go. Basically, this is when you pay off as many of the bills as you can even before your kid sings that last note of her Torah portion. Sound fantastic? It’s no fantasy. Here’s how:

Most B Mitzvah vendors – including the DJ, band, caterer, reception hall, and florist – require a 50 percent deposit at the time you place your order. In other words, come the day of the event, you've already paid nearly half the bill.

Systematic savings are the very best to go if you’ve got the time to do it, say many financial planners. This way, you keep your debt and interest payments to the absolute minimum. As soon as you get your B Mitzvah date, start setting aside as much discretionary income as you can. Financial advisers recommend opening a dedicated account at a credit union, where interest rates tend to be higher than at commercial banks.

As for what kind of account you open, you have 3 choices:

  • A money market. These are fully liquid, meaning you can withdraw at any time. Generally, there's no minimum balance. Be sure to shop around for a money market that pays interest monthly, or even daily. You earn more interest this way.

  • A short-term certificate of deposit, or CD. Unlike money markets, CDs are not fully liquid, meaning you can withdraw the money only when the CD “matures.” You do get to select your maturity date when you open the CD; options usually run from 3 months to 5 years. Interest rates are usually equivalent to or a hair higher than money markets. And you won’t be tempted to spend them down before the B Mitzvah.

  • A savings account. Fully liquid but the lowest interest rate of the three.

    Home Equity Lines-of-Credit
    (Skip this if you rent rather than own a home.) Home equity loans and lines-of-credit used to be exclusively for home improvement projects, like kitchen upgrades or in-ground pools. Today, though, banks are issuing them for big-ticket expenses outside the home, such as boats and B Mitzvahs.

    The advantage of borrowing against your home equity is that the interest is typically tax deductible and the rates are lower than with credit cards (roughly 6-8% compared to 14-18%). The disadvantage is that your most precious asset, your home, is being used as collateral. Default on the loan and you could lose your home. Another downside is that such loans can take a month or longer to process, as the bank usually requires getting an independent appraisal on your home. Time can also be eaten up when a homeowner disputes the appraisal figure and has to gather paperwork, such as recent sales figures on comparable homes, to rebut the bank’s estimate.

    So what’s the difference between a home equity loan to a home equity line of credit? When you take out a loan for $50,000, the bank gives you that amount – and your interest is calculated based on all $50,000. On the other hand, when you get a $50,000 line of credit, the bank sets $50,000 aside but you don’t have to use it all. So if you get a $50,000 line of credit but choose to spend only $20,000, you pay interest only on that $20,000. The rest is at your disposal but remains, from the bank’s perspective, unborrowed. For this reason, most financial planners advise clients to go for the line of credit.

    If time is of the essence, know that some banks now offer home equity loans in as little as 24 hours, skipping the lengthy appraisal process. The difference between these and the above-mentioned home equity products is that, typically, the amount of cash you can borrow is lower and the interest rate higher.

    Retirement Plans
    Be extremely careful about tapping into this source of money. In fact, most financial planners tell you to steer clear of this route or take it only as a last resort. Why? If you’re accessing money from your IRA and Keogh, you have to pay taxes on the money you take. What’s more, if you’re under 59 ½ years old, you must pay substantial early withdrawal penalties. A tad better is borrowing against the value of your 401(k) plan. But remember that defaulting means paying tax on the borrowed amount as well as a penalty for early withdrawal. Plus, you lose out on the money your account could have accrued had you not touched it.





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