There are a few changes in life that will come when you least expect them. While these changes can be positive, they will inevitably have an impact on your financial picture.
Having a Baby
The best way to prepare for this life change is to reassess your budget and save what you can before the baby comes. A good rule of thumb is to dedicate 50% of your budget to needs, 20% to savings, and 30% to wants. Your needs will be changing dramatically - formula, diapers, daycare, hospital costs, and more. You may even consider setting up an education savings plan or a 529 to start saving for your child's college or private schooling. Make a list of all your new expenses and do research on what they will cost in your area. Check out these tips on how to create your budget and use our free planner to easily get started!
Receiving an Inheritance
An inheritance comes with a lot of opportunity, but it can also come with unneeded stress or regret if you don’t manage the funds responsibly. Reach out to a financial advisor to help you review the state of your current finances. Take a look at your higher interest debt and determine if it makes sense to pay down balances to save on future interest costs. Consider increasing contributions to your retirement fund so you can continue to live comfortably in retirement or simply invest the funds to generate income. In addition, consider these as you navigate the ups and downs that come with sudden wealth.
Changing Jobs and Income
A job change that comes with a decrease in pay can be a major setback, especially when you don’t see it coming. One of the best ways to prepare for this unexpected life change is to maintain a savings account to get ahead of any potential loss of income. Start your savings account by first determining your monthly budget and then how much you can realistically save each month. Ideally, your starting goal for saving should be 20% of your monthly budget. If you’re not able to start there, assess where you can start and identify opportunities to cut back your spending. You might also consider a few no-spend months or setting a smaller monthly goal and increasing your monthly savings amount as you go. Be sure to roll a 401K over to your new employer-sponsored plan or an individual retirement account.
A second marriage brings challenges and opportunities. It’s important to have the “tough money” conversations up front and make it a priority to discuss your individual and joint financial goals before marriage. You could consider a prenuptial agreement since you are likely to have greater assets this time around and both will have more financially at stake. In addition to the prenup, take time to review insurance coverages, as you may find you can combine policies and avoid duplication. Life insurance and long-term care insurance are two specific areas to consider. Be intentional with updating beneficiaries and previous estate planning documents, clearly stating your wishes on who the assets will go to if something were to happen to you or your partner. You and your partner may even find it necessary to have a neutral party involved with your retirement and beyond. Connecting with a financial advisor can provide a sense of security as you enter this exciting new stage.
Experiencing Natural Disasters
Being prepared for unexpected natural disasters proves helpful in multiple ways. First, make sure you have the correct insurance coverage for your home, vehicles, and family. Check in with your insurance company to see what kind of coverage you have on your home. It could be time to make updates or add additional coverages, such as earthquake or flood insurance. Second, evaluate your savings and consider what you’d need to financially survive in the case of a natural disaster and temporary leave from work. Third, locate your financial documents and have a plan to access them in the case of an emergency. Consider renting a local safety deposit box or buy a fireproof safe or lock box for your home. Use it to securely maintain essentials like social security cards, birth certificates, property deeds, and vehicle titles. Digitizing financial files and insurance policies can also help eliminate potential stress in the case of a natural disaster.
While you can’t plan for everything, you can be prepared. Take the time now to educate and prepare yourself, so you can make the best financial decisions – and rest easy when life’s actually happening.