Major life events often bring financial changes to navigate
Life’s transitions — like divorce or a spouse’s death — impact us emotionally, as well as financially. And if you’re preparing for retirement, changing jobs or coping with the loss of a parent, these transitions can also be disruptive, stressful, and full of difficult decisions.
Many life transitions bring financial changes to navigate. When faced with life’s uncertainties, when it feels like things may be out of control, it’s important to review and adjust your financial plan to ensure you have control over your finances. During transitional times, be sure to:
Work with an experienced, objective financial professional. When you’re going through a major life transition, you’re likely experiencing powerful emotions, which can potentially hinder your ability to make clear-headed financial decisions. A financial professional can provide critical information and objective advice based on your particular circumstances, needs and goals. A “financial quarterback” can coordinate with your attorneys, accountants and other professionals, providing a valuable financial perspective.
Create a financial plan. Regardless of your life circumstances — a death, divorce, job change or other transition — having a detailed financial plan is essential. The plan will help you assess your current situation, set realistic goals and outline actionable steps to achieve them. A well-crafted financial plan can offer reassurance and direction during times of change.
Prioritize and budget. During life transitions, your financial priorities will likely shift.
For instance, after a divorce, you’ll need two separate households, doubling your family’s mortgage or rent. If a stay-at-home parent goes back to work, that could add child care costs to the equation. Re-evaluate your needs and expenses, adjusting your budget accordingly. Trim any non-essential expenses, like travel, entertainment or clothing, as necessary. Even if you haven’t kept a budget before, it will be critical to make one now and get a realistic look at where your money goes.
Ask the right questions. For instance, if you’re getting divorced, are you aware of all marital assets, so you’re certain to get your fair share? Would a lump sum payment be more appropriate for you than monthly alimony payments? If you’re switching jobs, what’s the most strategic way to transition your 401(k) to a different retirement plan? If you’re getting a sizable inheritance from a relative, what’s the best way to manage this newfound wealth, and what does this change about your prior financial plan?
Determine how to maximize your assets. Death or divorce are devastating events that often have negative and significant financial ramifications. Work with a financial advisor who can help you determine how to maximize your assets. Depending on your specific circumstances, this could include insurance payouts, alimony payments, strategic investments, etc. Understanding cash flow planning — and where your income will come from in this new reality — can help smooth the transition to the new normal.
Ensure that you have proper coverage. A big life change can impact your insurance coverage, so be certain that you’re properly protected. Were the insurance policies in your ex (or deceased) spouse’s name? If you changed jobs, does your new employer offer similar insurance coverage? If you were laid off, do you qualify for COBRA or other alternative insurance?
Retain some liquidity. During a difficult transition, you don’t want all your funds tied up in investments or retirement plans that are difficult to access — or that you can’t touch without penalty for years. Having liquidity can be very helpful during life’s transitions.
Recognize that there’s no “perfect time” for change. Ideally, it would be nice to make a major transition — like a career change — at a “perfect time” when you have plenty of money saved up and an amazing new job waiting in the wings, but that’s not always possible. Sometimes, people are desperate to leave their current job and may not have the “perfect” amount of savings or new job opportunity in place. Often, changing jobs is more about mental, physical and emotional needs than it is about financial, and that’s OK.
Protect your assets. Work with a financial professional who can help you understand tax implications, asset management, legal liabilities and investment strategies to protect your assets.
Don’t get overwhelmed. A knowledgeable financial professional can help you reduce the financial stress during a major life change, analyze the financial implications of various options and develop strategies to maximize your financial health.
Paul Stanley, CFP, CPM, CFF, is managing partner at Granite Bay Wealth Management.
