Navigating Life’s Big Moments with Smart Financial Planning

Life’s major milestones, like welcoming a new baby or saying “I do,” can bring both joy and significant financial challenges. It’s never too early to start planning for these events to ensure a smoother journey. And while weddings and the birth of a child are among the most recognized life events, there are many others that might not immediately come to mind, but equally demand financial planning. Consider events like buying a home, pursuing higher education, starting a business, or planning for retirement. Each of these milestones has its own set of financial obstacles and opportunities.

This article aims to provide practical financial advice for managing these pivotal moments, helping you prepare and enjoy the excitement without unnecessary stress.

8 Major Life Events You Should Be Budgeting For

Keep in mind that while some events are planned with eager anticipation, others may catch us off guard. Weddings and new additions to the family are joyous occasions typically charted on our life calendars, yet unexpected events such as a sudden illness or an unforeseen career shift can alter our financial landscape without warning. This mix of predictable and unpredictable life moments can be daunting, but with thoughtful and strategic financial planning, the anxiety associated with these events can be greatly diminished. Remember, preparation is key. The effort you invest in planning now is worthwhile, as it enables you to enjoy life’s milestones fully and face the unexpected with resilience and assurance. Let’s look at each life event and the tips for planning ahead.

1. Starting a Family

Bringing a child into the world is a beautiful experience, but it comes with a big price tag—perhaps the biggest price tag of all our major life events. From medical expenses to baby gear and childcare, the costs quickly add up. A study conducted by the USDA found that the average cost of raising a child to age 18 is approximately $233,610 (excluding college tuition). Accounting for inflation since the study’s publication in 2017, that figure has risen to $331,933 today!

Here’s how to budget for pregnancy and parenting:

• Healthcare Costs: Ensure you have comprehensive health insurance to cover prenatal care and delivery expenses. Consider opening a Health Savings Account (HSA) to offset costs.
• Fertility Treatments and Adoption: If you face fertility challenges, budget for treatments like IVF or adoption expenses. Fundraising and grants can help alleviate costs, and some places even offer special fertility loans.
• Childcare and Everyday Expenses: Plan for ongoing expenses like diapers, clothing, and childcare. Look into flexible spending accounts (FSAs) for tax savings on daycare expenses.
• Build a nest egg: By contributing a small amount consistently to a savings account, you can build a substantial nest egg by the time they reach milestones like college or starting their own family.

2. Buying a Home

Owning a home is a common goal for many millennials and young professionals. Here’s how to make it a reality:

• Saving for a Down Payment: Aim to save at least 20% of the home’s purchase price to avoid private mortgage insurance (PMI). Automate savings and explore down payment assistance programs. Creating a detailed savings plan for your down payment can help you achieve your homeownership goals faster. For instance, if you aim to save $20,000 for a down payment in five years, you need to save about $333 each month.
• Budgeting for Additional Costs: Don’t forget to budget for closing costs, property taxes, and maintenance expenses. A home inspection can help identify potential issues before you buy.
• Understanding Your Financial Picture: Before house hunting, review your credit score and debt-to-income ratio. A strong financial profile can lead to better loan terms.
• Shop around: Don’t forget to shop around for mortgage rates and explore different financing options to find the best deal that suits your financial situation. Websites like NerdWallet offer mortgage calculators and guides that can help you make informed decisions.

3. Planning a Wedding

Marriage is a beautiful union, but weddings can be expensive. The average wedding costs around $30,000, so let’s explore ways to celebrate without breaking the bank:

• Engagement Expenses: Consider alternatives to traditional engagement rings, like gemstone or vintage rings. Set a budget and communicate openly with your partner.
• Wedding Planning: Create a detailed budget and prioritize expenses. Focus on what’s most important to you, whether it’s the venue, food, or photography. Don’t be afraid to DIY certain aspects, and look for cost-saving opportunities. One couple found that by opting for a weekday wedding and using seasonal flowers, they saved over $5,000 on their wedding expenses.
• Combining Finances: Before tying the knot, discuss your financial goals and decide how you’ll manage finances together. This will set the tone for a harmonious financial partnership.

Remember, it’s essential to stick to your budget to avoid unnecessary stress both before and after the wedding.

4. Saving for Retirement

While retirement may seem far off, it’s never too early to start planning. Here’s how to secure a comfortable retirement:

• Contribute to Retirement Accounts: Maximize contributions to employer-sponsored plans like 401(k)s or IRAs. Take advantage of employer matching and catch-up contributions if eligible.
• Assess Your Needs: Estimate your retirement expenses and adjust your savings plan accordingly. Consider factors like healthcare, travel, and lifestyle. A good rule of thumb is to aim to save at least 15% of your pre-tax income each year for retirement. By consistently saving and investing wisely, you can ensure a financially secure future.
• Diversify Investments: Ensure your investment portfolio is diversified to minimize risk and maximize returns. Consult a financial advisor if needed.

5. Pursuing Higher Education

An investment in knowledge pays the best interest. But with college costs soaring, it’s crucial to plan ahead. According to Education Data Initiative, the average annual cost of attending a four-year in-state institution is $25,487. Here’s how to budget for education expenses:

• Saving for College: Consider opening a 529 plan or custodial account. A 529 plan allows for tax-free growth and can be used for qualified education expenses. Start early to maximize returns.
• Scholarships and Grants: Encourage your child to apply for scholarships and grants to offset tuition costs. Websites like Fastweb and Scholarships.com are great resources.
• Budgeting for Your Own Education: If you’re pursuing further education, explore options like employer tuition reimbursement, student loans, and refinancing. Make sure you understand the return on investment (ROI) before committing.

6. Managing Healthcare Costs

Healthcare costs can be a significant financial burden, especially as you age. It’s important to plan for medical expenses and ensure you have adequate health insurance coverage to protect your financial well-being.

• Consider an HSA: Consider enrolling in a Health Savings Account (HSA) if you’re eligible. HSAs offer triple tax benefits – contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
• Explore Supplemental Insurance: Regularly review your healthcare coverage and explore supplemental insurance options, like long-term care insurance, to safeguard against unexpected medical expenses that could otherwise deplete your savings.

7. Preparing for Personal Injury or Illness

Unexpected personal injuries or illnesses can have significant financial implications, especially if they result in lost income or mounting medical bills.

• Look into Disability Insurance: To protect yourself and your finances, consider investing in comprehensive insurance plans that include disability insurance. Disability insurance can provide a portion of your income if you’re unable to work due to a medical condition, thus ensuring you still manage essential expenses during recovery.
• Build an Emergency Fund: Building an emergency fund with three to six months’ worth of living expenses can offer a financial cushion, allowing you to focus on getting better without added stress.
• Understand Insurance Limitations: Ensure that you review and understand the terms and coverage limits of your insurance policies, so there are no surprises when you need them the most.

8. Coping with Changing or Losing a Job

Facing a job change or loss can be financially and emotionally challenging. It’s important to have a proactive strategy to manage such transitions.

• Have an Emergency Fund: Start by maintaining an emergency fund that covers three to six months of living expenses to bridge the gap between employment periods.
• Invest in New Skills: Consider enhancing your professional skills through online courses or certifications to increase your employment opportunities and adaptability in the job market. Additionally, updating your resume and LinkedIn profile can help you quickly respond to new job openings.
• Be Clear on your Unemployment Benefits: Understanding your severance packages and unemployment benefits can also provide temporary financial relief while you focus on securing new employment. By planning ahead, you can minimize the financial impact of unplanned career changes.

Building a Strong Foundation with Early Budgeting

When you budget early, your financial goals become more achievable, and you gain the flexibility to adapt to life’s changes with confidence. Remember, planning for life’s major milestones doesn’t just happen overnight; it’s a continuous process that evolves based on your circumstances and goals.

The advantage of planning early is akin to a snowball rolling down a hill—small efforts can lead to significant results over time. Start small, stay committed, and watch your financial stability grow.

Interested in personalized financial guidance? We can help! Contact OpenPlan today.

 

The information contained in this document is provided for informational purposes only and should not be construed as individualized advice. For individualized advice, please consult with your adviser.