If you're lucky, you'll have plenty of time to discuss and prepare for these momentous events and put a winning financial game plan into place. However, more often than not, major life changes can take you completely by surprise. Either way, it's important to make sure you are financially prepared for practically any situation.
Here are a few tips on how to keep your finances healthy through four significantly life-changing events:
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10 Retirement-Wrecking
Moves
Financial Mistakes That Could Haunt You Forever
There's
no doubt that getting married has an enormous impact on any
person's finances. Not only does marriage join two incomes, but
it often combines two sets of debt. This is why it's important
to talk about money before you even take that stroll down the
aisle. While your charming and handsome fiancé may seem perfect in
every way, behind that gleaming smile he could be hiding the fact
that he's lugging around $50,000 or more in debt. (For more
insight into this problem see
Does marrying someone with bad credit affect my
credit score?)
After the big day, one of the first things you happy newlyweds should do is sit down together and set some joint financial objectives. The honeymoon's officially over. Now it's time to talk money. Make a list of your financial priorities and discuss your goals for the future. For example, do you want to start saving up for a home or would you rather put money away for a worldwide travel adventure? Do either of you plan to go back to school or are you ready to have a baby? (For more tips, see Say "I Do" To Financial Compatibility.)
Once you agree upon some clear objectives, you can then figure out the best way to pay for these goals. Most financial experts suggest that you set up both short-term and long-term savings accounts . For long-term savings, sign up for your employer's 401(k) plan. Try to contribute the maximum amount allowed to these accounts, or at least give as much as possible.
You should also meet with a financial advisor to discuss other ways to invest for the long term. He or she may suggest that you put some money into an individual retirement account (IRA) or a mutual fund .
For short-term savings, you and your spouse should set up a high-interest savings account. You can use this money for more immediate expenses, like a new car, your next vacation or a down-payment on your first home. You should also set up a second savings account that will act as your emergency fund . Keep at least six months' worth of living expenses in this fund, and don't touch them unless you're facing an emergency, like an unexpected medical expense, a major car breakdown or a job loss.
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7 Ways To Position Yourself For Recovery
You
may start thinking about expanding the family after you've been
married for a year or so (or maybe after just a few weeks, for
those with a loudly ticking biological clock). Ideally, you've
paid off most of your debts, established goodcredit , and set up
both long-term and short-term savings accounts by now. If not,
these are all goals you should attempt to achieve before that bun
comes out of the oven.
However, having a child calls for a complete financial overhaul. After all, babies aren't cheap. As a matter of fact, some estimates show that a child will cost you between $200,000 and $250,000 over its lifetime.
So, how do you plan for such a major financial impact? First of all, you'll need to build up your cash reserves. Before the baby's due date, try to save up at least six months' worth of living expenses. Once the baby arrives, consider purchasing a life insurance policy as soon as possible. Life insurance will ensure that your child is financially protected if something were to happen to you or your spouse. (For more tips on how to prepare for this major life change, see Budgeting For A New Baby.)
Do you have a hunch that baby is going to be a super-genius? Even if you're certain that your little Einstein will win countless scholarship offers and you won't have to pay a dime for his schooling, you may want to go ahead and set up a college fund. There are countless college savings plans available, so talk to your financial advisor to discuss which option makes the most sense for your family.
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Financial Mistakes That Could Haunt You Forever
7 Ways To Position Yourself For Recovery
