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.
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.
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.
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.
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:
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;
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:
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.