As life changes, you must adjust your plans to reach or maintain your financial goals. Here are the top five life events that should have couples taking a second look at their personal finances.
A Career Change
At some point, one of you is going to change jobs. Or, you may experience a career event that involves getting a raise or promotion, changing industries, dealing with a layoff, or deciding one spouse will stay home. But since you probably have your career to thank for your income, job decisions aren’t ones to make lightly. When anticipating a major career change that is in your control, the experts say you and your significant other need to think through the short-term and long-term financial implications before making the move. To better cope with job changes that are hard to plan for, like downsizing, be sure to revisit your saving progress often and have an emergency budget at the ready. Too many folks were caught short by job loss or cuts in hours by the pandemic.
Starting a Business
Even if only one spouse is starting a business, it will impact both partners, says Brandy Baxter, accredited financial counselor (AFC) and founder at Texas financial coaching firm Living Abundantly. And while business funds will likely be separate from your personal money, there will still likely be shifts in your household’s income, cash flow, or assets.
An Inheritance or Other Windfall
Whether it’s a work bonus, an inheritance, or a winning lottery ticket, an incoming lump-sum payment should prompt you to talk about your goals and priorities as a couple. But before you accept your windfall, it’s also important to consider where to actually put the money, says Eric Croak, CFP, a financial consultant at Croak Asset Management in Ohio. If you put the money into a joint account, Croak explains it becomes marital property, with equal ownership for both spouses; put the money in an individual account, and that partner will be considered the sole owner. Thinking about this ownership isn’t just about what happens in a divorce, he says. “It’s important for asset protection and tax planning as well. If one spouse has a higher likelihood of being sued or chased by creditors, then they may want to keep assets out of their name for increased protection.”
Changes to Your Living Situation
Housing is probably your biggest expense each month. So, make sure to discuss your housing commitments before you make a big change. This goes for renters, as well as couples, who want to purchase a home. You should go beyond the up-front financial impact of moving and discuss things like how long you’ll stay in a home or city, career considerations, family planning, and lifestyle to get a full picture of how your life will change by changing your digs. If your potential new living situation is more expensive than where you are now, the financial planners say to make sure both parties agree on how to cover the extra expense—by cutting costs elsewhere, using savings, or working to earn more.
It’s perhaps the biggest decision a couple can make: whether to have, adopt, or foster a child. But the decision isn’t only about emotional readiness. It is also about financial readiness to have a child. Children are expensive. There are a variety of hidden costs to parenthood. These include medical bills, adoption fees, childcare, and other expenses that are important to plan ahead for. Recent estimates put the cost of raising a child through age 18 at almost a quarter of a million dollars. To prepare for your child’s arrival, you’ll need a budget you can stick to for the long-term. Setting a good foundation now can make it easier to manage your finances as your child grows. It may even help you include them as your family makes financial decisions.