When many people think about financial planning, they likely think it’s something that should happen later in life after they’ve accumulated significant assets. However, having a solid financial strategy in place is critical even at an early age to help prepare for major life events.
Big life changes can put a strain on your finances, and without a plan, you risk missing out on opportunities to save. Here are four milestone life events and a financial checklist to help navigate turning points:
Buying a Home
Owning a home is often seen as the ultimate wealth-building tool for the middle class. Yet, in many real estate markets, buying a first home can feel almost impossible. A home purchase requires a lot of financial discipline, both in terms of saving money and exercising restraint.
- Assess your financial health: Before diving into the real estate market, take a comprehensive look at your finances. Evaluate your income, expenses, savings, and credit score. A healthy credit score can secure a better mortgage rate.
- Save for a down payment: Aim to save at least 20% of the home’s purchase price for a down payment. This not only reduces the amount you need to borrow but also eliminates the need for private mortgage insurance (PMI), saving you money in the long run.
- Understand the true cost of homeownership: Beyond your mortgage, consider property taxes, home insurance, maintenance, and utilities. Create a budget that includes these costs to avoid any surprises. Build an emergency fund so you can cover the cost of a major repair or pay your mortgage if you lose your job.
Getting Married
Choosing a life partner impacts your finances in ways you might not even realize. However, many couples delay crucial discussions about finances and setting shared goals. It’s important to have open, honest conversations before making a lifelong commitment.
- Create a joint budget: Develop a budget that reflects your combined income and expenses. Make sure it includes savings goals, debt repayment, and discretionary spending.
- Plan for taxes: Marriage can impact your tax situation. Review your tax filing status and talk to a financial professional about how to maximize deductions and credits as a married couple.
- Update legal documents and insurance coverage: Update beneficiaries on insurance policies, retirement accounts, and wills. Buying life insurance is a necessity if one spouse’s death would cause financial hardship.
Having Children
A typical middle-income family with two children can expect to spend around $310,000 to raise a child until age 17, so it’s important to start planning as soon as possible.
- Update your insurance coverage: Ensure you have adequate health, life, and disability insurance. Life insurance is crucial to protect your family’s financial future if something happens to you.
- Estate planning: Create or update your will to include guardianship provisions for your children. Consider setting up a trust to manage your assets for your children’s benefit.
- Plan for education: Consider starting a 529 college savings plan or other education savings accounts early. The power of compound interest can significantly grow your savings over time.
Changing Jobs
Transitioning to a new role or career can lead to an increase in salary and benefits, but there are a few considerations to keep in mind that will impact your financial future.
- Negotiate your new compensation package: Beyond salary, negotiate benefits such as signing bonuses, stock options, retirement contributions, and flexible working conditions.
- Manage retirement accounts: Decide whether to leave your retirement savings in your former employer’s plan, roll it over to an IRA, or transfer it to your new employer’s plan. Each option has its pros and cons.
- Update your financial plan: Adjust your financial plan to reflect changes in income, benefits, and career goals. Consult with your financial advisor to ensure you are on track to meet your goals.
Major life events are exciting and transformative, but they also require careful financial planning. By taking proactive steps and seeking professional advice, you can navigate these milestones with confidence as you work toward a secure financial future.