Surviving Six of Life’s Major Changes: Part One
There are many big steps in life that require financial preparation to tackle them successfully. If you don’t plan these steps carefully, you may feel like you’ve been swept under a tidal wave. Some changes you can’t plan for, but let’s take a moment to ensure that you are ready for some of life’s expected changes.
- Getting your first job.
Whether you just graduated from college or are seeking you first real job, this increase in income and/or sudden reduction in education costs might at first seem to put you in the green. But unfortunately, bad financial habits that begin at a young age often lead to financial troubles. To avoid this, here are a few tips that will help you get on a healthy financial path:
- Your first and best habit should be saving. From the time you get your first paycheck, you should start saving. Start with a small percentage of your paycheck, perhaps 5%. As you get comfortable saving 5%, you then can move up to 10%, and so on. The point is to start immediately!
- Beware of credit cards. Many young adults get card-happy with their first credit card because it feels like they have so much more spending power, but the fact is that it is money they don’t have. New workers need to stave off the temptation of purchasing items on credit that they cannot pay for in full when the bill comes. If you are having a hard time keeping your balance down on your card, your solution should be to stop carrying your card and instead only use a debit card or cash.
- Get insured now. We’ve covered this many times now, but the bottom line is that as an adult it is never too early to get insured. In fact, the earlier you get life insurance, the better: When you are young and healthy, it is much easier to get approved for a good policy. Most young adults think little about life insurance and retirement because those days seem so far removed. It’s like you have an entire lifetime to plan for these things. Unfortunately, accidents and sickness happen. If you aren’t already insured before these major events, it becomes increasingly harder to get coverage.
- Changing jobs.
After their first real job, the majority of adults change jobs a handful of times. Sometimes these changes in jobs are not our choice, especially now with job security not what it used to be a decade ago. Regardless of the reason for your change in employment, it is best to plan for the unexpected and prepare for any future transitions.
- Be ready for a short-term decline in income. If you are changing jobs or careers altogether, be prepared to take on a lesser income, especially if you are starting in a new field or starting your own business. To do this, be sure you are spending less than your total income so that you can easily adjust to a slight lifestyle change. It is always good to have an emergency fund with six months worth of expenses set aside—if this is one of those times that you have to use that fund, that’s what it’s there for!
- Be ready for the financial impacts of relocating. If you are looking at taking a new job in a new city, you need to do more than just compare salaries of your old and new jobs. Relocating often involves a change in your cost of living, like the costs of housing, taxes, utilities, commuting, etc. All of these changes can add up quickly, which can mean that all of a sudden that slightly better salary isn’t so great.
- Getting married.
When they take the relationship leap into marriage, many couples forget about the financial decisions that need to be made. Financial issues are one of the biggest reasons couples end up filing for divorce, and often this is because they didn’t start on the same page before their nuptials.
- Talk about your financial past and future. Before you tie the knot, it is important to have a good understanding of what each person is bringing to the table, whether that is assets or debt. There shouldn’t be any surprises a few months or years into being newlyweds. Once you both have a good understanding of each other’s financial past, you can look at joint goals for the future. To ensure a healthy financial future, it is a good idea to revisit these goals multiple times a year so you both remain on the same page.
- Joint or separately managed finances? It is no longer assumed that newlyweds combine their finances. There is a wide range of choices, from keeping everything separate to merging all accounts, with everything in between as a possibility. It is important to realize that even if you choose to keep a separate account or two, the goal isn’t to hide money from your spouse. Be open and honest about all of your financial dealings once you are married.
- Insurance, wills, and beneficiaries. Now that you are married and have dual income, it is important to revisit you insurance needs and adjust where you see fit. If either of you rely on the other’s income, you should increase your life insurance protection in case something happens to the breadwinner. You should also take a look at the beneficiaries of your policies, who should now be changed to be your spouse and/or kids. Additionally, having a will or trust when you are married is important if you want to leave money to your spouse or children. If you haven’t set up a will, this is a good time to talk to an estate planner.
- Maximize employer benefits. If both partners are employed and have employer sponsored benefits, there is a good chance that your coverage overlaps. Be sure to look at your health insurance benefits and retirement plans to maximize the money you are spending and to get the best available plans.
Stay tuned for Part Two, where we’ll discuss how to prepare for buying a home, having kids, and retiring.