Planning for life events is one of the main pillars of proper financial management. Your investment strategies need to change depending on the life events you are facing. For example, the financial planning of a 25-year-old on their first job should differ from that of a 60-year-old retiree.
Life-changing events can wreak major havoc not just on your emotions but also on your finances. This is why you should include them in your financial planning. There are life events that you can predict so it is advisable to plan for them. These include getting your first job, starting a business, getting married, having children, or retirement.
Other life events such as getting a divorce or losing a loved one may catch you by surprise, but you can still set aside funds for unplanned life events. Read on for our best financial strategies for preparing yourself and your bank account for major life events.
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Your First Job
A first job is one of the major life events we all go through. It can set the stage for a future of prosperity or financial struggle depending on how you plan for it. At this stage, it is important to set proper financial habits such as budgeting and living within your means. You should also learn proper saving and investing to build a nest egg for your older years.
Your priority will be to get out and stay out of debt. If you have any student loans or credit card debts then work on paying them off as fast as possible. If your expenses are exceeding your income you may need to cut them. Focus also on building several avenues of income and upgrading your skills to increase your earning potential.
Another important tip is to save up an emergency fund of at least six months to a year’s worth of living expenses in case you lose a job or face a major life crisis. Do take advantage of any health, disability, or life insurances provided by your employer. If you don’t get insurance benefits, pay for an individual insurance plan to protect yourself in case of a major illness or accident.
Your younger years are the best time to take advantage of the compound interest one can earn from savings. Contribute as much as you can from your salary towards secure savings and investment vehicles such as IRAs. Take advantage of any pension schemes whereby your employer matches your contribution amount and contribute to the greatest possible amount. Invest in funds that have very small management fees as any profit you make can get eaten up by some of the fees that investment companies charge.
Starting a Family
Starting a family will take a toll on your finances as you will need to provide food, clothing and shelter for your family members. Marriage is a great avenue to build generational wealth especially if both partners earn an income. Before marriage, it is advisable to go for premarital counseling that focuses on financial planning, habits, and goals.
Discuss your debts and each partner should also catalog the assets they are bringing into the marriage. If appropriate, sign a prenuptial agreement to protect both parties.
Once you’re married, make sure to add your new spouse to your insurance plans, emergency contact lists, etc. You should also upgrade your life insurance and disability insurance to ensure your growing family is taken care of should something happen to you.
Save enough to cover items such as medical care, school, etc when saving for children. Also, try and take out a health insurance plan that covers prenatal and postnatal care.
Consider that your household income may reduce if one parent will stay at home to take care of the child. However, a stay at home parent cuts costs on childcare fees. You have to consider the best option for your family finances and emotional wellbeing.
If you do get divorced, try and keep it as civil as possible to avoid financial loss through unending legal fees and financial sabotage by your ex. Also, remember to cancel all joint accounts and credit cards.
Buying a home is another major life event that most people go through. Some modern financial advisors are against buying a home. This is because it ties you down to a location, ties up a lot of your capital and the interest can be very expensive if you have a bad credit score. But buying a home is a great investment if you can afford it, have found a bargain buy, or if you want to build a real estate portfolio.
The type of home you can afford depends on how much you have saved for a down payment. You should also factor in how much you can afford monthly towards mortgage payments, property taxes, and insurance. Factor in some extra funds to cover house maintenance, repairs, and renovations. To get the best deal on mortgages shop around to at least four different providers and compare their offers. Also, remember to set aside some money for closing costs that include lawyer fees and home inspection fees.
Many people decide to continue working or opt to start a business after retirement because their mental and physical health allows them to do so. It is important though to protect your nest egg as using it for business capital may leave you destitute if the business collapses.
If your business or post-retirement career takes off, the extra income will be great for your finances. This is because it will allow you to postpone cashing in your social security checks. The longer you delay collecting on your social security the better it is for you as you will have more money in your elderly years when you need it.
The older you get the higher your health insurance premiums will be, so consider this when making your financial plans. Research the plans available for retirees and consider signing up for a COBRA plan with your current employer before you retire.
Be Financially Prepared For Major Life Events
Getting yourself mentally and financially prepared for major life events can be a saving grace for anyone. The best thing to do in any case is to plan ahead for unexpected circumstances.
It’s true that financial literacy isn’t always handed to us at a young age. Yet it’s never too late to learn! Check out our personal finance learning center for more tips and information.