Life has a funny way of working, doesn’t it? Sometimes things fall right into place, while other times even a well thought out plan can’t prepare you for the many curve balls thrown your way. Good, bad, or ugly, life events impact your finances in big ways. Here are a few life events that can impact your finances and the best ways to prepare for these changes.
Couples are deciding to marry later and later in life. By waiting to marry, it may make the act of combining, finances a little bit more complex. When you get married you no longer manage your finances as an individual — you manage them as a partnership. The goal is to make all financial decisions together for the common good of the union.
Making financial decisions together takes compromise and patience. You have to consider each person’s needs and if each decision aligns with your joint goals.
On the other hand, if your marriage doesn’t work out, you may resort to divorce. If you decide to get a divorce, you may transition from managing your finances as a team to going at it alone. You are now solely responsible for your financial well-being and a prosperous future. Both transitions can impact your finances in many ways. Before you get hitched or sign divorce papers, make sure you understand the financial implication of your decision.
Starting a family
Did you know it costs an average of $233,610 to raise a child? It’s shocking and this amount doesn’t include a college education. When a new baby arrives, many parents don’t take into account the many expenses they are about to add to their budget. Not only will a new family need to budget for diapers, clothes, food, and a nursery, they will need to consider the health insurance premiums, the future costs of education, a new life insurance policy, and more.
Once you have a child, it’s your sole responsibility to financially support their needs. Having a child is a big life event that impacts your finances now and into the future.
Losing a loved one
Losing a loved one is not only emotionally devastating but it can be financial draining as well. Depending on your loved one’s financial situation and your relationship with the deceased, you may have to take on the financial burden of sorting out their financial matters. This could entail applying for life insurance benefits, paying off debt, or conducting the sale of their estate as an executor. Hopefully, they have a detailed plan in place to ease the burden of this transition. If not, you may have to take charge and tie up their loose ends.
In addition to handling their financial matters, the deceased may have left you an inheritance. Coming into a large sum of money in a short amount of time can have a big impact on your finances. You will need to decide the best way to use the money to boost your financial well-being. Impulsive financial decisions can end up hurting your financial security in the long run.
Getting a promotion or transitioning to a new career may mean an increase in pay. Once your new paycheck hits your account, you may feel compelled to purchase your dream car or contact an architect to proceed with renovations on your house. It’s important to remember that just because your salary has increased, it doesn’t mean it’s appropriate to spend frivolously.
If this is your first time acquiring a substantial income, it’s tempting to spend beyond your means. But before you increase your expenses, review your current budget and determine the best way to allocate the additional funds. It may be wise to not make any financial decisions for at least the first few months of your new promotion. This will give you a chance to adjust and get comfortable with your new salary.
Another life event that impacts your finances in a big way is losing your job. Whether your company decides to downsize or you’re laid off for personal reasons, you will need to figure out how to maintain your living expenses without an income. If you’re not prepared for this loss it could be financially devastating.
Retirement is considered one of the biggest milestones in a person’s life. If you haven’t made a proper plan for retirement or worked with a financial planner to develop a retirement budget, your new lifestyle could lead to financial shock.
Now that you don’t have a steady income from your employer, you will need other sources of income to supplement the cost of your lifestyle. You will have to take into account your Social Security benefits, sources of income, tax strategies, estate planning, wealth management, and much more.
How to plan for life events that impact your finances
There are many life events that impact your finances. The best way to prepare for the transitions of life is to create a detailed financial plan. Before moving forward with any financial decision, you must evaluate all of the financial implications.
Taking into account your entire financial picture may be a bit of a challenge solo and you may wish to enlist the help of a financial professional such as a financial planner. From wealth management to income planning, identifying financial solutions can be daunting. There are so many factors to consider when preparing for life events, and since you’re not the expert, you may not know what to expect.
Financial planners have experience working with clients in similar financial situations. They understand the hurdles and the solutions for addressing them as they may have helped hundreds of individuals retire before you. Their experience can help you avoid similar missteps. Understanding these road blocks will help you better prepare for the future ahead.
The bottom line
Financial planners are more than wealth management experts. They can become your friend, confidant, and support system for the transitions life has to offer. With the proper planning and preparation, you can combat any life event head-on.