Surviving Six of Life’s Major Changes: Part Two

In Part One ( we talked about three major life changes that typically occur while you are a young adult, like a getting your first real job, preparing to change jobs, and getting married. By the time these first three big events take place, the next three shouldn’t be too difficult to handle­—if you were financially prepared during the first three. Life has a way of getting away from us, though, so it is important to stop and take inventory of where you are at and where you are going. The next three major events include buying a home, having children, and retiring.

4. Buying a home.

Most Americans eventually buy a home. Although homeownership is not a requirement for financial success, it does provide financial rewards as long as you are properly prepared.

  • Get your finances in order. Analyze your current budget (if you don’t have a budget, you really should not be thinking about buying a home) and ensure you are ready to take on this additional debt. Do the research and plan for all of the expenses that are involved with buying a home, including utilities, property taxes, and maintenance.  If you find that with these new expenses and added debt your future retirement goals and other short-term and long-term goals will suffer, then start saving so you can be ready for this kind of investment down the road.
  • Is now the right time? Before you start looking for your dream home, you should ask yourself if you are planning on staying put for 3-5 years. If there is a high likelihood that life will take you somewhere else in the next few years, buying a home now most likely doesn’t make financial sense. If you are thinking you’ll be able to buy and sell your house in that timeframe, the truth is you’ll likely lose a lot of money in transaction costs.

5. Having children.

Adding children to the already complex mix of holding down a job, paying bills, preparing for your financial future, and everything else involved with being a responsible adult can make anyone feel like time and money are tight. To prevent any financial detours and to remain sane, it is important to figure out how to manage your time and money early on. This will help you to be a successful parent.

  • Budget and priorities. Needless to say, having a child increases your spending. It is important to be realistic about these increases in expenditures, from clothing and food to insurance and daycare. Children will also change your priorities, so it is important to plan ahead. Is a bigger home in a better school district important? Do you want to spend more time with your kids and therefore take a cut in your income?
  • Insurance and maternity leave. It is important to increase your insurance before you get pregnant. Make sure your health insurance provider has maternity benefits. With disability insurance, pregnancy is considered a preexisting condition, so be sure to obtain this beforehand. Before starting a family, if you don’t already, you should get life insurance for both parents even if one is a stay-at-home parent. If you wait until after you start a family, you are much more likely to have a health problem which may affect your coverage. Double check what kind of maternity leave your employer offers: Some have paid leave and others unpaid. Make sure that you are aware of the options available before you take leave and that you understand the financial ramifications.
  • Update your will or trust and health insurance. It is important that you update your will once you have children because you will need to name a legal guardian in case something happens to you and your spouse. As soon as you welcome your newborn into the world, enroll them in your health insurance plan.
  • Benefit from the child tax credit. For each child under 17, you get a $1,000 deduction on your federal income tax.

6. Retiring.

Many young adults look at their future retirement as a time that will be filled with leisure, travel, and play—as the good life, in other words. Unfortunately, many people as they come of retirement age don’t get to experience what they’d imagined because of inadequate planning. Here are some tips to help you get started on the right footing:

  • Take inventory of your assets and resources. Take the time to do the math to see what your finances will look like during retirement, without your full-time income and with changes in expenses. You need to understand what you have and compare it against what you need. If you don’t know what these exact numbers are, you will start retirement financially blind.
  • Reexamine your insurance.  Although as you retire you may no longer need insurance to protect your income, you may need increased liability insurance as your assets grow.
  • Get your estate in order. It isn’t the most joyous thing to plan, but successfully confronting your mortality and planning what happens to your assets is a good next step when you’re in your retirement years. Revisit your will and/or living trust; if you don’t have one, now is a good time create one. Remember, if you don’t have some kind of will, your heirs are powerless: A hired distributor will allocate the assets and take a cut of your estate. Now is a good time to revisit your will and possibly create a living trust, as many people opt for a living trust to avoid future probate. Ultimately, you want to ensure that everything will be taken care of as you wish with minimal taxes. To make these decisions, you may want to talk to an estate planner, although most estate planning strategies don’t require an attorney.

With a little bit of planning, the major changes in life can be beautiful experiences. Start planning  your future now to make sure you don’t get caught unprepared.

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