Financial Planning for Big Changes

Odds are solid that at some point during your adult years you are going to change jobs (maybe more than once), move, have a child or run into some other massive life change. These changes can be stressful and emotional on their own. Toss in money concerns and you have potential for epic disasters.

Because you know about these types of life changes there are a few things you can do know to insulate yourself from the financial consequences.

Start saving now
The importance of having at least an emergency fund cannot be overstated. Saving before you have a big life change will give you a little more freedom if the time comes when expenses are more than you expected or you find yourself without an income for a time. Ideally, you should have two savings accounts: an emergency fund (short-term savings) and a long-term savings account. Long term covers vacations and big purchases. Short-term is to help cover unexpected expenses or make up for lost income for a set amount of time.

If you are a low income earner make sure that you are also taking advantage of government subsidies and if you run into a situation that requires cash, avoid high interest loans and consider specialty benefit loans first.

Have a contingency plan
It is always a good idea to have a plan in place for unexpected changes. If you have a savings account, plan to rely on 50 to 80 percent of it so that you do not wipe out your entire savings in one swipe. You may also have a list of expenses you can easily cut out if you run short on cash. Having a go-to plan can make life changes a bit easier. For example: If you plan to have one parent stay home with a new baby, planning ahead, so you have some income saved up will help with the transition period. You may also plan to stock up on supplies and food while you have enough money to do so. You can use this storage when you need it.

Do your research
Job changes and moves are often a result of your choices. If you want to make a big move to a new city or you are considering changing jobs, take time to research the financial consequences. Can you afford to live in the new area? How much more will you spend on your living expenses (rent, food, gas and electricity etc.)? Can you truly afford a new home? Preparing for some big changes will help you decide if you are financially ready to tackle your new challenges.

Do not cash out retirement
One major mistake that people make when a big life change hits them is to dip into their retirement savings. This is so bad on a multitude of levels. First: You are taking away from your future. You will need that money when you get older. Second: You will likely face tax penalties and fees for early withdraw of your funds. This can be costly depending on how much money you take out of your account. The biggest problem with taking out cash early is that you miss earned interest, which can add up to a lot of cash over time.

Planning for big life changes ahead of time will have make your transition easier and less stressful. Solid financial planning is the key to successfully navigating unexpected events.