Money Management

6 Financial Steps to Take When Making a Big Life Change

August 19, 2022

Life's winding and deviating path implies that everyone experiences significant life changes at various points during their lives. Perhaps you decide to return to school, marry, divorce, or switch jobs. Any of them can have significant financial consequences, especially if you are unprepared.

Financial costs are associated with some life changes. Others may arrive laden with stunning new opportunities to save money. The idea is to plan ahead of time, even if recent changes are in the process.

Planning allows you to weather changes that may interfere with your short and long-term financial goals. Here are some steps to assist you deal with any life changes.

1. Create a Rainy-Day Fund to Cushion You in the Face of Change

You might have planned some changes throughout life. But others can be sudden, unexpected, and on a massive scale. Milestones such as marriage or retirement are long-term plans.

On the contrary, an illness, a new job, or job loss can suddenly occur, sending financial shockwaves into your life. Regardless of the nature of the situation, stress, or transition, financial costs will come knocking.

A financial safety net can help you morph into the situation more smoothly. The money can conveniently cover your bills and necessities as you try to adjust to the new changes.

Identifying potential expenses for long-term and milestone transitions is easy, such as buying a new home. For others, it's not as simple.

The rule of thumb is to shelve at least three to six months' worth of expenses in a separate account—to access these funds only when such thunderous situations occur.

Again, the trick is to set up an automatic transfer system that deducts a specific percentage from your paycheck straight to your emergency account fund.

2. Acknowledge and Accept the Changes with a Reviewed Suitable Budget

The right and positive attitude go a long way to managing stress during any huge life change. It's about being realistic about the new changes and understanding the expenses involved.

Assuming you are switching jobs. You may have to restructure your budget, factoring in your commuter and accommodation expenses. You may also have to make a few life changes based on your new paycheck and payment schedule.

What if you are starting a new family? Despite a big change in itself, it's something you might have seen coming. Your new budget could factor in necessities such as healthcare, childcare, clothing, and baby formula expenses. Later, you can make the adjustments once more by budgeting for education.

Similarly, retirement is a huge milestone with new budgetary demands. It's better to start saving as early as possible since it's an inevitable life change.

Financial experts state that any retirement budget should enable you to make ends meet without straining. You can estimate your monthly/ annual expenses, medical cost, and vacations, then calculate how much you save routinely.

3. Reevaluate and Adjust Your Financial Goals

Some of the life changes occurring now might be temporary, so neglecting your long-term financial goals would be unwise. Permit some flexibility, making a few adjustments where necessary.

For instance, if you had a one-year or five-year plan, you might have to push to a two-year or seven-year goal. Doing so provides some breathing space and sufficient time to reflect.

Also, due to the change in circumstances, decide which goals have gotten overtaken over time. You can replace them with fresh tangible ones.

4. Keep Your Expenses as Low as Possible

Unsurprisingly, most big life changes come with unique financial complexities and less income.

Some of the changes might lead to earning less to zero income. Even if it's short-term, you have to cut your expenses and live within/ below your means.

Examples of changes that can negatively impact your money could be:

Switching Jobs. If the next position is lower, minimising your expenditure could go a long way in helping you to live within your means and avoid bad debt. You might have to make a few lifestyle changes to achieve your financial goals. The same situation applies to a job loss.
Relocating: If you decide to relocate either upcountry or abroad, whether, for education or greener pastures, it might also mean that your finances will be impacted. Regardless, maintain small expenses with adequate savings to hack such an immense change.
Starting a Family: When a baby comes into the picture that in itself means a huge financial shift and priorities. Cutting down some of your expenses to cater to the new arrival can be a good way to run your budget without ruining it.

5. Stick to Your Good Money Habits Irrespective of Massive Life Changes

Good money habits involve practical activities that will assist you in reaching your financial objectives. Aside from improving your relationship with money, good money habits allow you to live a comfortable, financially stress-free life.

Although everyone's situation is unique and there's no one size that fits all, here are some excellent money habits you can maintain even in the face of a massive life change;

If you have been keeping track of your net worth, continue. Your net worth, in this case, factors in everything you own, including savings and investments, minus debt. You can effortlessly track every expenditure and saving by staying fully aware of how your money flows in and where it goes and be sure to keep updating it.
If you have been regularly boosting your emergency funds, keep going. During this time, you will realize how critical such a fund can save you stress, and it's only sensible that you keep improving it.
Have you also been religiously paying off any outstanding debts? Keep at it, and do not falter.
Make need-based and emergency-based expenses only, avoiding the temptation to over-spend or impulse buy things. If you find yourself spending more than you bring home, it's time to break the habit.

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6. Continuously Invest and Save Even When on a Tight Budget

You may face financial difficulties during a major life transition, but should this deter you from saving? No!

The challenge is to modify your budget across all items and categories. Small modifications could include:

Change how you shop for groceries, including the amount, frequency, and location.
Turn off the lights and appliances when you are not using them.
Take your kids to less expensive schools.
Control your overall food expenditure. For example, if you are used to dining out, you can minimise the number of times you do so. The same applies to how many times and how much food you order in.
Control any new bad shopping habits. Big life changes can also result in new anxieties, which might lead to bad financial habits. As a coping strategy, impulse purchases can occur. However, it is equivalent to extinguishing a fire with fire. Aggravating an already demanding life condition. To solve the problem, unsubscribe from all those enticing online shopping apps and carry just enough cash for any shopping trip.

WRAPPING UP

The most important life changes can have significant financial consequences. It is often necessary to spend or save money. A job loss, divorce, or illness might deplete all of your savings.

Even if you transition to self-employment, it may take several months for things to settle down and money to start seeping into your account.

However, tempting prospects are also included on the list of big life transitions. A practical, realistic plan keeps you from squandering your savings account or the perks of a high-paying job.

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Ian Job is an articulate writer with over four years of experience in SEO writing, digital marketing and screenwriting. Away from writing, he's probably producing an indie movie if you don't find him mentoring upcoming content writers. You can connect with him on Medium.