Financially Preparing for Life Milestones
Throughout life, everyone faces significant changes that affect them personally and also financially. While some of these changes happen with little warning, there are others that you often have time to prepare for. For these life milestones, it’s important to prepare yourself mentally and emotionally but also financially. Big life changes often also mean big changes for your finances as well.
Here are some ways that you can prepare financially for four of life’s biggest changes.
Financially Preparing to Get Married
Getting married is a joyous time and it’s also a significant life change. This is when you start sharing your life with another person, and that includes your finances. The first step is to talk about your individual financial situations and to be honest with one another. Having this talk and getting everything out in the open will prevent conflicts and financial trouble in the future, even if it’s not a comfortable conversation to have. The more you know about your financial situation, the easier it becomes to plan for the future.
It’s important to set goals for yourselves, both individually and as a couple. If each person in the relationship has different goals, you’ll either need to figure out how to make both happen or learn to prioritize without getting into arguments. This can sometimes be difficult but staying calm and communicating openly and honestly can help.
Remember that you won’t only need to financially prepare for the future, you’ll also have to prepare to pay for the wedding. Figure out how much you have to spend (and whether your families will be helping financially), then make sure to have a budget that makes sense for you. It’s important to remember that any money you spend now (as well as any debts that you take on to pay for your wedding) will affect your financial situation after you’re married.
Financially Preparing to Buy a Home
Buying a home is a big life milestone and also a major investment. If you want to buy a home, either by yourself or with your partner, you’ll need to start saving. The more money you put down on your home, the less you’ll have to borrow on your mortgage, which will mean smaller monthly payments and less overall debt. Determine how much you can put aside each month so you can build your down payment.
You’ll also need to figure out what size mortgage you can afford. This is different from how much you can borrow. The bank may be willing to give you a certain size mortgage, but you’re the one who will need to make the payments and afford all of your other life expenses. If you borrow too much, you’ll likely have trouble paying your bills.
Look at your budget and figure out how much you can afford to pay each month. Don’t forget that you’ll also need to put money aside for home maintenance as well as emergencies.
Financially Preparing for a Baby
There’s a lot to do before a new baby arrives, and that includes making sure you’re prepared financially. If you or your partner will be taking time off work after the baby arrives, this likely means you’ll need to learn to live off a reduced income. Figure out how much you may receive in terms of parental leave benefits, then make a budget so that everything balances on your new family income. You may need to cut some costs to make things balance.
When it comes to buying things for the baby (clothing, toys, etc.) you’ll likely have to learn to prioritize. You don’t need to buy absolutely everything at once and you don’t need to get the most expensive version of each option. Figure out what you really need, see if you can find ways to borrow certain items, and buy things over time as you need them, rather than buying everything at once. This will prevent you from spending money on things that aren’t necessary.
You may also want to start saving for future costs such as childcare, schooling, and other expenses. These costs can get quite expensive, so the sooner you start saving, the more you’ll have available when the time comes.
Financially Preparing to Retire
Most people work their entire lives with the goal of having a comfortable retirement when the time comes. However, if you’re not prepared, you could end up in financial trouble when it comes time to stop working.
The sooner you start saving for retirement, the more time your money has to grow before you need it. If your employer offers a pension plan or RRSP matching program, consider taking advantage of these offerings as they can make retirement easier.
If you’re approaching retirement age, one of the most important things you can do is take steps to reduce your debt. Once you stop working, your income will almost certainly decrease. If you have a significant amount of debt, it will be tough to make payments and afford the rest of your expenses. Cut costs where you can in order to lower the amount you owe and reduce the number of financial commitments you have.