Financial Strategies for Major Life Events

Financial Strategies for Major Life Events As you encounter major life events, different financial matters will be of primary concern. For instance, your financial concerns when you start your first job will be very different from your concerns as you approach retirement age.

Some tips to consider as you encounter major life events include:

Your First Job
  • Establish solid financial habits, since the habits you develop now will set the financial tone for the rest of your life. Start by setting up record-keeping systems, monitoring your cash flow, and developing a workable budget.
  • Before you get used to spending your entire paycheck, start saving at least 10% of your gross income. A good place to start is with your 401(k) plan at work. If you can't save the maximum permitted by the plan, at least save enough to take full advantage of any employer matching.
  • Review all benefits offered by your employer, taking advantage of all that are appropriate for your circumstances. Many benefits are offered free or can be paid with pretax dollars.

  • Update documents. Review your estate planning documents, asset ownership, and beneficiary designations to make sure they reflect your wishes for the distribution of your assets to your spouse.
  • Track expenses for a month. This will give you an idea of where money is spent, so you can decide how to spend money in the future. It will also highlight areas where the two of you differ regarding finances. You can then set a written budget to guide your spending.
  • Decide on joint or separate bank accounts. Some couples prefer pooling all funds, believing it helps create a feeling of unity. Others, however, have difficulty losing their financial autonomy, especially if they have been on their own for many years.
  • Split financial responsibilities. One person may be more suited for the tasks due to their background or time availability. However, the other spouse should not give up total control.

  • Name a guardian for your children. If you and your spouse both die without naming one, the courts will appoint a guardian and supervise your children's property.
  • Purchase sufficient life insurance to provide for your children until they are adults. Determine how much is needed for living expenses, hobbies, medical expenses, and college. Also ensure you have adequate disability income insurance, so your family's lifestyle won't be disrupted if you incur an injury or illness.
  • Save for college. Many people have difficulty saving the entire amount needed to fund a college education. However, there are other sources available, such as borrowing and financial aid. Thus, your goal may be to accumulate 30%, 50%, or some other percentage of the total cost. Take a look at education savings accounts and section 529 plans, both of which have significant tax advantages.
  • Teach money basics to your children. In a society that has difficulty managing money, teaching your children good money skills is a lesson that will benefit them for a lifetime.

A Job Loss
  • Don't just accept your employer's severance package. Try to negotiate for more severance pay or for an extension of health insurance benefits. If your employer won't cover health insurance, check into COBRA coverage and pay the premiums yourself.
  • Update your resume. Take advantage of any career counseling opportunities offered by your former employer. Look into the possibility of a career change if you have difficulty finding a job. Consider taking courses to update your job skills or to qualify for another job.
  • While this may be a time when you'll need to dip into your emergency cash reserve, use the money carefully, since you don't know how long you'll be without a job. Look for ways to cut your living expenses and avoid nonessential expenses like vacations, clothing, and entertainment.

A Second Marriage
  • Prepare formal estate planning documents to carry out your wishes. Even with a will, your spouse can typically override its terms and elect to receive a statutory percentage. To prevent this, you usually need a prenuptial or nuptial agreement.
  • Review beneficiary designations and life insurance amounts. It's not unusual to forget to update beneficiary designations for retirement accounts, individual retirement accounts, and life insurance policies. Also review your life insurance amounts, since you may need more to help ensure all heirs are treated equitably.
  • Discuss your plans with your spouse and children. Openly discussing your plans before death may prevent disagreements among heirs after your death.

  • Before retiring, review your finances carefully to ensure you have adequate funds. You may want to consider part-time employment, both to supplement your income and to occupy your time.
  • If you retire before age 65, obtain health insurance until you're eligible for Medicare.
  • Plan for long-term-care needs through the use of insurance or savings.
  • Before retirement, make any necessary changes to your debt structure. For instance, you may want to refinance your mortgage, purchase a new car with a loan, or open a home-equity line of credit for future needs.
  • Review your estate plan. Consider a living will, health-care proxy, and durable power of attorney.

Use these tips and you'll be ready when those major changes in life happen.