Understanding How to Financially Plan for Life’s Biggest Changes

Understanding How to Financially Plan for Life’s Biggest Changes

Back in the mid-2000s (when we had a Boston Sports Champion crowned seemingly every  year) we met one of our now favorite clients. A woman in her early 50s looking for some help getting out of a short-term financial jam. She had been living and working in Boston in the  healthcare sector, and for the most part, kept her head down and just did her thing. A few short term cash flow challenges snuck up on her and she seemed to feel stuck.  

We were lucky enough to be introduced to one another as she began taking a hard look at not  just some short-term challenges…but the coming chapters of her life – which would ultimately  be a series of transitions. 

She followed a similar path to her peers – she had a career she liked and made good money  doing it, she enjoyed life’s passions and travel. The question was: Could she transition out of  an intermediate-term squeeze into accumulation mode to prepare for an eventual retirement? 

Much of our financial planning work throughout the year is focused on getting from one chapter  to the next. Each chapter has its own “mini financial plan”. Every new chapter is a transition  from on strategy to the next. 

What do we mean when we say transitions?  

Life is full of changes, isn’t it? With the seasons comes a new set of changes each year, big and  small. Transitioning to retirement is just one type of life transition that you may feel nervous,  excited, or even unprepared for. But there are other changes, too: changes in the market,  changes in jobs, graduations, retirements… The list goes on.  

Some of these changes, like graduations, or retirements, we can expect and plan for. But  others, like loss of a job, we might not be able to predict to a T. When we talk about new  “chapters” in a clients’ story – it could be defined by a number of catalysts. Any of these sound  familiar? 

  • A layoff from a job…or a big promotion and increase in pay 
  • Change in jobs, career – or stopping full time work altogether 
  • Starting – or growing – a business 
  • Getting married 
  • Starting a Family 
  • Separation or Divorce 
  • Selling a business
  • Death of a family member 
  • Caring for another family member 

All of these changes have one thing in common: they require financial resources. Some of these  changes you might be able to predict and plan for, but others might come as a surprise. So how  do you prepare for something like that? 

How you can prepare, financially, for big life transitions  

Life changes constantly keep us on our toes and maybe give us some rolling anxiety. No matter  the type of move, you will need to prepare financially as well as emotionally. Whether those  changes come with the seasons or on their own time, it’s important to prepare and plan ahead.  Lack of a plan can cause its own laundry list of problems. In addition, it may mean you miss  some opportunities.  

How can you prepare, then? Try these tips:  

1. Keep it positive 

Before we talk about the financial side of things, let’s talk about mindset. First things first, it’s  crucial to remember that you’re in charge of your own attitude. Before thinking about any  changes, think about your mindset. No matter what life throws your way, remember to keep  cool. Whether or not you have people depending on you, a positive mindset can really make a  bad situation worse. If something unexpected happens, are you going to freak out or are you  going to be calm and think things through? You alone hold the power to make the situation  better.  

2. Build a financial fallback plan 

Life happens, with or without your permissions. It’s true that you will recognize some of the  change coming your way (think: retirement, planning for children, etc), but it’s also true that you  might not be able to anticipate every single thing (think: a medical emergency, loss of job, etc).  

It’s not a question of “when.” It’s a question of “how much will this cost?”  

That’s why you need to consider a financial fallback plan. Emergency savings or “liquidity”  (meaning assets that are accessible quickly and with little consequence) can make all the  difference when those seasons of change come around, unexpectedly. Having a fallback option  can help you cover your expenses and maintain your quality of life.  

How can you do this?  

  • Set up automatic bank transfers from checking to a ”hidden” savings accounts each  month…or even each week!
  • Automated savings can help you be your own “bank” for a future transition
  • Balance building liquid assets along side long-term assets (real estate, retirement)
  • Consider your list of emergency resources (Savings, Home Equity Line of Credit, etc.) 

Once the fund is set up, forget about it. You’re building a savings or “liquidity” option for those  unexpected life changes…a security blanket when the time comes! 

3. Prioritize your goals 

What’s most important in your life? Understanding your own priorities makes it easier to make  decisions when big changes are happening in your life.  

Think of it this way: when someone gets hurt in a car crash, you need to administer triage. That  means deciding what gets treatment first. You make that list by understanding what’s most  important to you. For some families, for example, safety comes first. That means spending extra  money to protect safety first and foremost. For many of our clients, education is a huge priority  – but can come at an equally large cost or sacrifice. When an education goal ranks #1, we build  around this priority. 

4. Leave room to pivot, if need be 

This may just be one of the most important parts of the equation. Having a plan in place is key – but making adjustments to your plan is equally important. You want to maintain a degree of  flexibility, so that you can change direction if something big happens. How do you do this?  

  • Do not spend beyond your means – save some for later! 
  • Be vigilant in protecting your credit and avoiding “bad debt” – credit cards, personal  loans – which can snowball out of your control 
  • Stick to a financial budget for extracurriculars and hobbies 
  • Leave some time for yourself; putting limits on time commitments can help build  boundaries 
  • Communicate the “fork-in-the-road” choices to your family and trusted advisors 

5. Understand your known transitions in life  

It’s one thing to be thrown for a loop when something unexpected happens. But it’s another to  be thrown for a loop when a known transition comes up. So many of life’s biggest changes and  biggest financial commitments are foreseeable. The months before planning a wedding…or  those 8-9 months before a new baby arrives allow time to lay a foundation. Longer run you can  plan ahead for a vacation home purchase or your retirement in slow-motion over years.  

Don’t forget to do your homework. Research and planning can help reduce the fear of the  unknown, and it puts you in a better position to handle any unexpected changes that come your  way. 

Here’s how you might prepare for known transitions:  

  • Start early! As soon as something is a desire that requires financial resources – set  aside a “bucket” for it 
  • If you’re planning to buy a house, assemble your “team”, sock away early for a down  payment and research the marketplace 
  • Budget for “big ticket” items you foresee in the next 5 years (new car, renovation,  education costs) 
  • Save for those longer term goals as early as possible – we can never go back in time to  start earlier 
  • Automate! Put elements of your plan on auto-pilot! Example: Think about those 401k  contributions which requires no work on your part to fund. 
  • Early sacrifices bring about future flexibility!  

Most importantly, when any transitions or troubles do come up, don’t just pretend they’re not  happening. Do your best to face them head-on and handle it. Even when facing something as  scary as the future, some planning and resources set aside will always be better than waiting  until it is too late, and your choices are made for you.  

Final thoughts  

We sometimes joke with clients that we will deal with a Financial TO-DO List in “McNugget Size”  bites. It is so hard to fix everything all at once – no matter what you are trying to fix. In the case  of the client mentioned earlier, it was important to put a great deal of our collective energy into  overcoming the shorter-term cash flow hurdles. It is hard to feel like you can tackle the distant  future if you can’t tackle tomorrow.  

In the end – many shorter term problems with debts, family changes, recessions, layoffs,  business troubles and life’s other hurdles can be overcome given time, patience, partnership  and a plan. 

It’s no secret that life comes with its own twists and turns. Like the seasons, you can always  depend on life to throw you some curveballs. In times of change, remember to keep a positive  attitude and seek out professional help, if you need it.  

Patience, pragmatism and a plan can help turn the pages toward the next chapter.

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