Strategic Financial Planning for Major Life Events

By Prodosh Kundu    15 May,2024

   Our journey of life is all about a series of milestones which mark a new chapter in not just our personal lives but also our financial lives. 

Careful financial planning for some major life events like getting married, starting a family, purchasing a home or even quitting a job to start an entrepreneurial venture can make the transition smooth! 

Time is crucial when you are trying to save money for some major expenses. The sooner you start saving, the better it is. Consistent contributions to your investment accounts can have a major impact on your financial preparedness for different life events.

Let’s delve into some facts that can be a good guide for those who wish to plan their finances for major life events, to avoid setbacks or disappointments.

Buying a Home:

Buying a home is one of the biggest financial decisions of any individual. Undoubtedly, for many, buying their first home is extremely difficult because it involves a lot of financial discipline and restraint to save money. 

Check out some steps that can help in making your home buying event a bit easier.

●Try to have a credit score of 740 or higher – You are definitely going to get some of the best rates if your score is 740 or higher. If your score is not quite there, try to make your payments on time.

●Create an emergency fund – When you plan to buy a home, you need to first think about having a six-month emergency fund. It will cover some of the major expenses in case you lose your job.

●Cut down your expenses – When saving money to buy a property, you have to create a budget and reduce your expenses. Reduce whimsical expenses on shopping, entertaining and eating out. It will help in building good savings.

●You Can Plan for Automated Savings Contributions – Setting up these automatic transfers to your savings account will help in ensuring discipline and consistency. You will be able to create your own fund to buy a house in a short time.

These were some of the most common and easiest way to plan your finances when buying a home.

Getting Married:

Financial planning for marriage is about preparing for a financial journey together. Here are some steps that can be involved:

Communication – When getting married discussing financial situations is necessary that includes discussions on spending habits, income, debts, assets and other financial goals. It is necessary to talk about one another’s priorities, values and attitude towards money.

Joint Budgeting – Creation of a joint budget that will reflect financial goals, expenses and combined income makes a good start. 

A list of all sources of income can be prepared. Expenses can be categorized into different categories – such as groceries and entertainment. 

Funds can be allocated for debt repayment, savings or discretionary spending so that the budget aligns with the financial goals.

Create an Emergency Fund – You can establish an emergency fund to cover various medical bills or funds for even for car repairs. You can save for at least six months as a part of your financial planning strategy.

In other words, financial planning for marriage is all about promoting financial harmony and laying a solid groundwork for an immensely happy partnership.
Starting a Family:

Having a baby is about having big changes in personal finances. Whether one is planning to become a parent soon or in the distant future, planning finances early can help in saving money. 

One gets greater peace of mind and feels ready financially to get the responsibilities of the baby.

Financial planning when starting a family usually involves a few steps – these include:

●Making an assessment of current financial situation – Consider income, common expenses, savings and debt. Couples can decide amongst themselves as to who will manage what and how finances will be handled. 

Decisions on who will pay the bills are also critical. This will help in building a starting point for planning.

●Family Budget – Developing a family budget is the next step which will include expenses that gets added with a new family member. This includes childcare, baby supplies, medical cost, transportation costs and more.

Estimating Future Expenses – Take into account all additional costs that you might have to incur when raising a child. This includes expenditure on education, healthcare, clothing and various extracurricular activities.

●Reconsider your Insurance – Spend time and evaluate your health insurance coverage. Consider updating policies or adding to your existing policy so that financial protection is available for your family.

●Childcare Cost Planning – Those who are first time parents can research a bit on the childcare options. They can make an estimate of the associated costs that include nanny services, and day care costs. These expenses can be incorporated in the savings.

These were some of the many things that can be done for financial planning as one starts a family.

Divorce or Separation:

Separating from spouse involves untangling assets and shared finances. Divorcing couples have to divide their assets like personal property, investments, retirement accounts and even vehicles fairly. 

For example, if they have bought a property together, they need to decide whether they would like to sell this property and split its proceeds or do something else.

Alimony is a critical part of spousal support which usually offers financial assistance to the lower-earning spouse. Sometimes the amount is so large that a lot of planning needs to be done to arrange for this money.

Though it might sound weird to many, there are several people who create emergency funds for such an awkward situation. Emotional trauma and financial distress might become difficult to handle for many.

Major life events might have immediate financial implications, but it is necessary to maintain long-term perspectives as well. Strategic planning is all about balancing short-term goals of the individual while keeping in mind long-term security.

It is never advisable to make financial decisions based on existing or present needs without considering its impact on the overall well-being of the individual.

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