Are you contemplating a career change or perhaps weighing the pros and cons of retirement? Maybe you’re anticipating the arrival of a new baby or you have children who are ready to leave the nest. Or, on a more somber note, is the realization of divorce on the horizon or are you trying to find your way after experiencing the loss of a loved one? Life is full of transitions and finding your “new normal” after these big events can be tough. Sometimes really tough.
Whether your life transition is the result of a conscious choice on your part or whether it is completely out of your control, most of the time it can be very stressful, especially if it changes a facet of your life that has been the same for years, or even decades. As you’re being pulled in a hundred directions and begin to adjust to your new reality, one thing typically gets missed—your financial future. We are all pretty good at understanding how today will be affected by our decisions, but how much thought have you given to the impact of your decisions on tomorrow, or the long-term?
Money may not be top-of-mind when your life encounters a change, but sooner rather than later it needs to be considered since your long-term financial well-being will be affected by almost every decision you make. Planning for tomorrow is the most important part. (For related reading, see: 5 Emotional Mistakes That Hurt Your Financial Plans.)
Important Life Transitions
Work. Changes in employment can be both scary and exciting. Losing your job or voluntarily taking a new job changes your finances. If you had a 401(k) plan at your old job you’ll have to decide what to do with the funds. Taking a new job may mean you will lose a pension that you were counting on for the future. An increase or decrease in salary can affect what you’re currently saving for your future. Planning ahead can ensure your savings won’t miss a beat when you’re embarking on your new path.
Children. Bringing a new baby home is a huge change, from being responsible for another human being to the amount of sleep you’ll be getting. Children also impact your finances. Adding a child to your family may mean adding a 529 plan to help fund your little one’s future education. You’ll also have dependents to add to your taxes, and you may qualify for additional deductions for childcare. Having a grown child move out also has financial implications. You no longer have a dependent to claim on your taxes, and you also may no longer have a need for your current home. Deciding whether to stay put or downsize to a smaller house may affect your financial success. Planning ahead ensures that children remain one of your life’s greatest joys.
Relationships. A change in your marital status affects both your current financial status and long-term financial goals. Filing for divorce not only means a split personally, but also financially. How you file your taxes will be different, and your beneficiary on your life insurance, will, 401(k), and IRAs will most likely need to be updated. Deciding who will keep the house, or if you will sell it outright, will also impact your financial future. If you get remarried or your current spouse passes away, these same items will need to be reviewed. Planning will help you navigate the expected and the unexpected turns in relationships. (For related reading, see: The ROI When Your Millennial Kid Lives at Home.)
Retirement. The decision about when to retire can be a tough choice for many of us. It can be very difficult to look into the future and see if we have the necessary assets to sustain us for our expected future years. Planning for your retirement isn’t as simple as figuring out how much you would like to spend. And not all spending is equal, so it is important to identify your needs, wants and wishes and then prioritize what is most important. In addition, there are many variables that will play into the mix, particularly as they relate to ever increasing life expectancy. Also, the cost of healthcare and potential long-term care needs can be quite significant and are often underestimated. Planning ahead will help ensure your retirement is all that you dreamed it would be.
The good news is that with on-going financial planning you can successfully meet any changes life throws your way. After all, isn’t life about constant change? Have confidence, your “new normal” is just around the corner! (For related reading, see: 5 Financial Planning Decisions You Won't Regret.)