For many people, going through a major life change is an emotionally and financially stressful time. No matter if you’re a college grad searching for your first job or retiring from work, the key to navigating any significant life change is preparation.
The more you anticipate and know about a new situation, the better. And in some cases, you might benefit from the services of a financial or legal professional for specialized strategies.
Here are financial planning tips to help you successfully manage 5 major life changes.
1. Getting your first job
Graduating from college or setting out to find your first job is probably the first major life change you’ll have. It’s a huge milestone filled with excitement — but many potential pitfalls as well. Some important financial areas to address sooner rather than later are savings and insurance.
Creating a savings plan for emergencies and making regular investments for retirement will massively benefit your financial future. The best move you can make is to start setting money aside as soon as you start earning. Starting early allows your money to compound and grow exponentially over time, even if you can only afford to invest small amounts.
A mistake many young professionals make is believing they don’t earn enough to save. If you think you can wait for a raise or bonus and catch up later, it will cost you in the long run. You’re never too young to begin planning and saving for your future.
It’s also important to protect your earnings and personal belongings by having enough of the right kinds of insurance. Never go without key coverage such as health, renters and disability insurance.
Remember health insurance pays a portion of your medical bills but doesn’t pay everyday living expenses if you’re unable to work. But if you get sick or injured and have disability insurance, you’re protected. While you recuperate, it pays a significant portion (such as 60% or 70%) of your income that you can spend any way you like.
2. Getting married or divorced
Starting life with a spouse comes with many financial considerations such as budgeting, managing debt and sharing assets. Create a personal financial statement that documents what each of you brings to the marriage, including your:
• Sources of income
• Assets (such as real estate, vehicles, jewelry and savings)
• Investment and retirement accounts
• Debts (such as credit cards, student loans and mortgages)
• Insurance policies
Discuss your financial dreams, habits, and plans to manage money. Will you have separate or joint bank accounts? Who will monitor a budget and make sure bills are paid on time?
If you each have employer-sponsored health insurance, determine if you can share a health plan that offers the best benefits. Decide how much each of you will contribute to a workplace retirement plan or save for goals such as an emergency fund or down payment on a home.
Start off on the right foot by communicating frequently and honestly about your money goals and challenges. It’s easier to have more success when you work as a team.
But if your marriage comes to an end, you’ll probably need financial and legal guidance to unravel your union and protect your interests. Make sure to update beneficiaries on your will, retirement accounts and life insurance policies to reflect your wishes.
3. Starting a family
Having or adopting a child is a huge event that brings lifestyle and financial challenges. Inevitably, you’ll begin thinking about budgeting for additional expenses and saving for future college costs.
Every new parent should have a will that clearly spells out a guardian if you die while your child is a minor. You also need to update beneficiaries named on financial accounts and insurance policies. And if you don’t have life insurance, it’s an easy way to protect family members who rely on your income.
4. Having an illness or injury
You could experience an unexpected injury or illness at any time. Consider how you’d pay everyday bills, such as groceries, rent or loan payments if you couldn’t work.
The key to surviving financially, even when you can’t earn an income, is having disability insurance. There are short- and long-term policies that kick in after a certain period of time for covered events such as pregnancy, having a back injury, being in a car accident or being treated for cancer.
5. Dealing with death
Experiencing the death of a spouse or family member is one of the most traumatic and life-changing events. And if you’ve been depending on a deceased person for your financial security, his or her death can leave you with huge economic challenges.
Life insurance was created to give you financial security even after the death of a breadwinner in your family. It’s a contract with an insurance company that pays one or more beneficiaries when an insured person dies.
Having a life policy can’t make you immune to a tragedy, but it should be a central part of your financial plan and strategy for managing the unexpected.