December 26, 2018

Financial Tips for Major Life Events

How can you be financially prepared for the monumental changes life may bring?

While there is never a bad time to begin practicing good financial habits, certain life events can bring about specific priorities, needs, and questions to be answered. Whether you are merging your finances with your spouse after marriage, investing in your first home, or adding a new baby for whom you will be financially responsible, consider some of these tips for your journey. 

Just Married

While it may not be the first topic on your mind after you return from your honeymoon, if you haven’t already sat down with your spouse to talk about finances, you should definitely make this a priority. Money can be a huge source of stress in a relationship, so getting on the same page is something you should take very seriously. Here are a few things to consider as newlyweds.

Talk About Your Past

The way your parents handled money can have a big impact on your adult relationship with your own finances. Talk to your spouse about what money was like growing up and how you’ve each handled your own finances to this point. 

Decide How to Handle Accounts

Will you combine all of your accounts or maintain separate ones? Even if you maintain separate accounts, it may make sense to have a joint account for shared expenses. If you have separate accounts, keep in mind this will be more to manage, but may also mean less bickering or judgment over purchases made from what has been allocated to one individual. These are important decisions to make and can have a major impact on how your finances are handled. 

Determine Priorities

Work with your spouse to determine your financial priorities. Do you have debt that needs to be paid off? Is there something major for which you would like to save? Make sure you agree about where the money goes and in what order.

Decide Who’s Responsible 

Who will pay the bills and manage the finances? Will these duties be shared, or will one spouse take responsibility? Don’t assume your spouse is taking care of something without having a clear conversation about it. 

Contribute to Retirement Savings

If your employer offers a 401(k) or 403(b) account, contribute as much as you can to get the maximum match offered. If your employer doesn’t offer a retirement account option, work with a reputable advisor to establish the type of retirement account that’s in your best interest.

Buy Insurance

Insurance is the only way to protect yourself from catastrophic medical bills or a loss of income due to a long-term disability. If you have the option of choosing whose health insurance you will carry, weigh the choices carefully to see what makes financial sense. Life insurance is also an important way to protect your spouse from the financial impact of your premature death. 

New Homeowners

Buying your first home is a major financial decision, and certainly triggers the need for some serious money planning. Here are some things to consider as a new homeowner.

Build a Budget

If you’ve never had a budget before, the purchase of a home is certainly a good time to start. If you have one, it’s important to update it to reflect the financial changes your new home purchase has brought about. Start by calculating your total household income and deducting regularly occurring expenses. Then try to estimate for other essentials like groceries, medications, etc. Use one of the many online tools or apps available to assist you in completing your budget and tracking it monthly. 

Prepare for Property Tax Increases

Don’t assume that the property tax bill you had in the past will remain the same year after year. Property taxes typically rise over time. If you escrow for your taxes—your bank adds this amount to your monthly payment to be earmarked for tax bills later on—it is easy to think you have your tax liability covered. Many homeowners can be caught off guard when the difference between what is escrowed for and what shows up on the tax bill becomes their responsibility.

Plan for Maintenance

Unlike renting, when you buy a home, you become financially responsible for any repairs and maintenance that may be necessary. While it is impossible to estimate how much you may need to plan for in any given year, many people use the rule of 1–2 percent of your home’s value annually. If your home is older, or in need of a major repair like a new roof, expect to shell out even more. 

Don’t Overspend Too Soon

Buying a new home is a very exciting time. It can be extremely tempting to splurge on new furniture, art, or even start considering renovations. While it may be difficult, hold off on such purchases until you’ve had the chance to plan and save for them. 

Start an Emergency Fund

Now more than ever, you need to establish an emergency fund. At a minimum, this fund should have enough money to cover expenses for three months; ideally, six months or more. 

Buy Insurance

While you were likely required to purchase homeowner’s insurance in the process of obtaining a mortgage, make sure you are comfortable with the company and coverage you chose. Additionally, now that you own your home, if you live with others, consider what would happen to them if you were to lose one of your household incomes. Protecting your loved ones from the financial blow of an illness or disability with disability income insurance is now more important than ever. Also, consider the additional burden your loved ones would have to bear if you died unexpectedly and they could no longer stay in the home. Purchasing a life insurance policy can protect your loved ones’ ability to stay in the home and minimize the financial impact they feel at such a devastating and emotional time.  

New Parents

There are few things that impact one’s life to the same extent as a new baby. Beyond the obvious lifestyle changes, the financial changes can be just as intense. According to the U.S. Department of Agriculture, the cost of raising a child for a middle-income family is $233,610, excluding the cost of college. Here are a few things to consider as a new parent, or each time you welcome a new child into your family.

Increase Your Emergency Fund

Ideally, you already have an emergency fund established. Now is the time you want to consider increasing it. Having more people in your family to be financially responsible for can increase your chances of having unexpected expenses occur.

Update Your Budget

Even before they eat solid foods or need money for summer camp, babies can still affect your bottom line in a big way. Consider monthly expenses such as childcare—or the financial impact of a parent staying home—as well as diapers, increased health insurance costs, and possibly formula. Also, factor in one-time purchases such a crib, a high chair, and other baby gear.

Start a College Savings Plan

A 529 plan is most likely your best bet to start saving for your child’s college education. Some estimates put the cost of four-year college in 18 years at nearly half a million dollars. While there’s really no way of knowing exactly what the price tag on that education will be in the future, it’s certainly something to start saving for today. Keep in mind not to save for your child’s education at the expense of your own retirement savings. While your child may be able to obtain loans or scholarships, you are the only person who is going to finance your own retirement. 

Make an Estate Plan

Parents with minor children should make sure to have a proper estate plan in order. This includes a will, power of attorney, health care power of attorney, and medical directives. A will allows you to choose a guardian for your child or children. You can also name a trustee to oversee any assets for minor children.

Buy Insurance

Now more than ever, you should protect your family’s financial future with life insurance. What would happen to your children if your family no longer had your income? Would they have to dramatically adjust the lifestyle they have become accustomed to? Would they be able to afford a meaningful education? Now that others are financially dependent on you, life insurance is one of the most important ways you can take care of them. Term life insurance can be an especially good choice to make sure you have adequate coverage at a reasonable price while your children are financially dependent upon you. Contact your local district representative for more details.