Navigating Financial Planning During Major Life Changes
Written by
Laura Bogart
Edited by
Ashleigh Ray
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If there’s one constant in life, it’s change. Of course, some life changes are happier than others, like going to the altar or the corner office, and others fit within the natural progression of your career, like planning for retirement. Regardless of whether the change involves taking the keys to a new home, sending a kid to college or contending with a sudden passing, they all have one element in common — they’ll impact your personal finances.
Like anything that will have an effect on your money, you’ll need to prepare and budget for major life changes. The prospect of having to pivot financially — especially suddenly — might feel overwhelming. However, with the right mindset and approach, you can be in a good place to start navigating challenges in financial planning.
GOBankingRates talked to a few experts to get some general insights about how you can be ready — or as ready as you can be — to financially weather some of the sunnier, or stormier, life changes.
Figure Out Your Life Plans
As the CEO of Wealth Advisory Group, Inc, a World Insurance company, Richard Craft has helped people prepare for a lot of life changes. His big advice? You’ve got to align your life plan with your financial plans.
Think of it this way: Your life plan is about if you choose to get married or have kids, what kind of work you’ll enjoy and the lifestyle you’d like to live. Once you’ve identified these core objectives, you can work with a dedicated financial planner who will help you align your money with your goals.
“A good advisor is like a good family doctor — they get to know you and keep you financially healthy,” said Craft. “They give you a financial plan to follow, and when things go ‘off track’ (which they will), they guide you to the help you need.
“They can also help you look way down the road, 20 or 30 years, to show you the track you are on and what it might look like.”
Your advisor can help you understand what you can do to create the vision you have for your life in real life, with real money — in part by letting you know if you need to change something up, like saving even more.
“… an advisor has more clarity and can be less emotional. [They] can be impartial and show how that decision might impact the long-run,” he said.
“An example might be how much house [you] should buy and how to finance it. Maybe a little less house and more savings would work out better. The same is true with the purchase of an expensive car — the main goal is efficient transportation.”
Assess Your Current Financial Situation Against the Impending Changes
Starting with a clear-eyed assessment of your current financial situation is imperative, since knowing where you’re starting from will help you understand how to maneuver through life changes that are joyful and challenging alike.
When working with clients, Sydney Thompson, a certified financial planner (CFP) and wealth manager at Merit Financial Advisors, approaches life changes as if assembling an intricate puzzle.
“Each piece represents a goal — like marriage, homeownership or retirement,” said Thompson. “Without thoughtful planning, it can be challenging to visualize how these pieces connect to form a complete picture.”
With your individual life goals forming the image that the puzzle contains, it’s time to review your current financial situation to determine if you’ll be able to embrace the life changes you hope to make.
“For example, will you be able to comfortably fit a mortgage payment into your monthly cash flow based on the home you would like to buy?” said Thompson. “If not, then maybe you can cut back spending on non-essential items to ensure you are meeting the needed savings requirement for the home purchase or possibly purchasing a more affordable home.
She added, “This is a good time to evaluate whether the goal is realistic or if you will have to evaluate other alternatives.
Have a Savings Strategy for Major Life Events
Once you know what your major life goal is, you need to create your savings strategy. Thompson said that the timeframe of your goal can influence your strategy and how aggressively you implement it.
“Time is the greatest asset when it comes to saving for long-term events. In the case of retirement planning, if you start investing at age 25 and take advantage of compounding returns, you will have to save less (assuming the same retirement time horizon) than someone who starts saving at age 35,” she said.
Shore Up Your Insurance
While you want to imagine more felicitous life changes, the truth is that sometimes, these events can be sad, or even tragic.
To prepare for these events before they happen, you should have high quality insurance. Thompson said that reviewing your current health and disability insurance policies to ensure you have solid coverage can help you minimize out-of-pocket expenses in case of accidents, injuries and illnesses that could keep you from work.
“Additionally, for those with dependents and liabilities, having life insurance can ensure financial stability for loved ones in the event of an unexpected death,” she added.
“When calculating your life insurance coverage needs, final expenses, mortgages (and other debts), education expenses and income replacement should be considered. This should be continually reviewed as there are several instances which could change your insurance needs including marriage, having a child, buying a new home and retirement.”
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