Major life transitions such as getting married, buying a home, becoming parents, grieving loss or illness, losing jobs, getting divorced and retiring all increase financial pressures. By planning ahead and managing debt efficiently as well as prioritizing and budgeting with help from an experienced advisor these challenges can be mitigated significantly.
Budgeting
As your life transitions, money management requires an in-depth analysis of your current financial state and an approach that aligns with your goals. This may involve setting a budget that details income, expenses, debt payments and savings targets as well as setting and reviewing financial goals on an ongoing basis.
At times of transition in life, it is vitally important to prioritize paying down debt, saving for retirement, and revising long-term goals as necessary. Doing so will reduce financial stress while improving decision-making abilities.
Alongside creating a budget, it is also wise to establish an emergency fund with enough savings for three to six months of living expenses. This can help reduce stress during life transitions and bring peace of mind. When making major life changes it may also be wise to consult a financial advisor for guidance and support; these experts can assist with complex matters that might otherwise be unmanageable while steering you toward a prosperous future.
Debt Management
Birth, divorce or the loss of a loved one all carry major financial implications that need to be managed carefully in order to reduce stress levels and avoid future financial difficulties. By managing money during these life transitions effectively you can help minimize stress while also protecting against financial disaster.
To effectively manage debt, start by compiling an inventory of all outstanding liabilities - this may include credit card balances, car loans and mortgages - noting their balance, interest rate and minimum payment amounts for each. From there you can use either an avalanche or snowball approach to prioritize debt payoff.
If you're struggling to meet your monthly payments, seek credit counseling or a debt management plan (DMP). A counselor can negotiate on your behalf for lower interest rates and fee waivers from creditors. Debt consolidation loans, debt settlement, bankruptcy are also options; but be mindful that such actions could damage your credit and undermine financial future prospects.
Taxes
Divorce can be an unforeseen, life-altering event and often presents its own set of financial obstacles. State laws determine how assets and debts should be divided; during a separation or divorce agreement both spouses retain next-of-kin decision-making rights; once divorced those rights will cease.
At times of transition, it's essential to set clear financial goals and enact an action plan. An emergency fund should also be established in case unexpected expenses or income fluctuations arise; working with a financial advisor can assist in this regard.
Investments
Real estate, retirement accounts or life insurance investments can serve as an anchor during periods of major transition for individuals. They can help meet future financial goals, manage unexpected expenses and help people cope with loss of a spouse or partner.
Purchase of a home can be an enormous financial undertaking that involves both upfront and ongoing costs, including mortgage payments, property taxes and maintenance fees. Preparation for this life transition by building credit histories, obtaining pre-approval for loans and saving for down payments can help individuals prepare themselves financially.
Divorce can bring unpredictability and additional expenses, including legal fees, asset division costs, alimony or child support payments and the costs associated with living separately. Individuals can minimize its effect on their finances by opening separate bank accounts, paying off shared debts early and updating beneficiary information for investments like pension plans, TFSAs, RRSPs or life insurance policies.
