Life comes at you fast, and there are always life transitions that seem to be intruding on the status quo. Whether you’re a young student preparing for college, a couple planning to marry, or someone selling a home, these big life changes have a major impact on your finances. To ensure you maintain good financial health no matter what life throws at you, there are a number of things you should consider. If you want to be prepared for what lies ahead, explore these eight financial things that you should contemplate during any transition.
Focus on Your Emergency Fund
Whether the life transition you’re facing is a positive or a negative one, many times your emergency fund takes a major hit. You could have dipped into it to pay for a major medical bill or used it to help you buy a house. Regardless of the reason, you need to focus on building it back to your previous balance. There are a number of strategies for saving money that you should consider, including tightening your household budget, putting any windfalls directly into your savings account, and setting limits on luxury spending.
You may want to make your emergency fund a little less accessible than your other accounts to help you avoid cheating to pay off small debts or buy unnecessary luxuries. Once your emergency fund is back to full strength, you can start focusing on the other financial hurdles you face during a life transition.
Balance Liquid & Investment Assets
When major life transitions are heading your way, reorganizing your assets is the first step to being prepared. You want to guarantee that you have enough accessible money to pay bills, but you don’t want to liquidize all your investments if they’re doing well. Calculate how much of your work income is needed to pay bills and explore the balances in your savings accounts before looking to sell any stocks or pull money from your mutual funds.
The True Cost of Life Changes
Some transitions have long-term effects that require you to completely reorganize your life. Having a child, buying a home, or switching jobs are all 15 to 30-year commitments that are a huge drain on your resources if you don’t plan ahead.
If you’re expecting to welcome a child into this world, you should be factoring in more than just diapers and formula into your budget—you should also be planning for their future. Do you need to start saving up to send them to college? Are you planning on buying them their first car? Have you considered some of the most common injuries and illnesses they may be facing?
Buying a home is a little simpler than having a child — but not by much! This is another life change that comes with a number of hidden surprises if you’re not prepared. Yes, you now have a mortgage to consider, but there are other costs that you should be aware of. You should look into starting a home maintenance savings account for any unforeseen repairs, accidents, or natural disasters.
Create a New Budget
After you’ve considered ALL the costs of some life changes that have come your way, you should be reassessing what it really means to live within your means. There are a number of items on your budget that you should look at changing. If you’ve transitioned from a renter to a homeowner, you need to swap out your rent costs for your mortgage costs. Is your mortgage higher than your rent was? Now, you need to look into lowering spending to make up for the change. Whether it’s reviewing your trusty grocery list or changing your budget for eating out, there’s a balancing act that needs to be maintained.
While some of your major life changes may be temporary, reviewing your budget is always a good idea. You may suddenly discover places where you can save more money or realize that you’re no longer spending in certain areas and can reallocate the funds.
Set Aside Emotional Attachments to Assets
Many people realize that they need to find additional funds when their life changes, but they refuse to consider selling certain assets because of emotional attachments. Whether it’s a car you can no longer afford or a membership that doesn’t fit into your budget anymore, you need to consider getting rid of it. Set your emotions aside and think about what your finances will look like 5 or 10 years from now. Will this drain on your resources still be important to you then?
Debt Repayment Planning
If the major change in your life requires you to go into debt, you should start exploring strategies to pay off that debt as soon as possible. Many times, high-interest rates and compound interest can drown you in your debt much more quickly than you expect. Do your best to create a debt repayment plan either on your own or with the assistance of a financial planning expert.
Re-examine Financial Goals
Did you reach a financial goal during this transitory period in your life? Whether your goal was to save up enough to afford a home or to avoid debt when paying for your wedding, it’s time to re-evaluate your goals. You’ve crossed one off the list! Are there any other goals that you should be focusing on? Any new goals you want to add? Review your list of goals and decide which ones are most important.
Set New Financial Goals
Achieving your financial goals provides you with a major sense of satisfaction, but this isn’t the end of the road! Life is always changing and evolving. Setting new financial goals as you grow should be a constant part of your financial health. Even if you haven’t reached a particular goal, you may realize it isn’t important to you anymore. Set new goals that speak to where your life is now and forge ahead with confidence.
Now that you know exactly what to consider when you’re facing major life transitions, revisit these strategies often to ensure you stay on track in the future.
Katie Tejada is a writer, editor, and former HR professional. She often covers developments in HR, business communication, recruiting, real estate and finance, but also enjoys writing about travel, interiors, and events.