major life events can affect your financial future. What should you do to about your finances when major life changes occur?
When Should You Reassess Your Finances?
Whether they are positive or negative, major life events change your financial picture. Here is a list of a few major life events that require you to re-examine your financial plans:
- Your marital status changes.
Whether you get married, divorced, or become widowed, financial chaos can set in when you are merging or untangling your finances from someone else.
- You have a new child.
Whether it’s your first child or your fourth child, every new life in the family requires a reassessment of finances related to employment, college, life insurance, and retirement.
- You have a financial setback.
Whether you’ve lost your job or made an unfortunate move in the stock market, a major financial setback can and should alter your spending and investments.
- You buy a house.
Few purchases are as life-altering (or expensive) as purchasing a house or property. New payments, real estate taxes, homeowner’s insurance, and HOA fees are just a few of the new expenses you need to address.
- You have a financial windfall.
Good news—you have more money. Not so good news—you may owe a bunch of new taxes or even land yourself in a new tax bracket.
- You have a significant change in health.
New diagnoses or accidents can be financially devastating and require a careful approach to handling finances.
- You retire.
While retirement is something to celebrate, it is also the time for an entirely new approach to spending and saving money.
Financial Considerations When Major Life Changes Occur
Do you have enough? Do you need to decrease the amount that you are saving each month or from each paycheck? Should some of your savings be moved to an investment or other account? Should you increase the amount of money you save?
Should you increase or decrease the amount of your withholdings? Should you change your filing status? Should you pre-pay any part of your tax bill? Should you be making quarterly payments?
Is it time to reassess your investment portfolio? Can you afford to be riskier, or does a life change require you to be more conservative? Do you need to liquidate an investment? Are you investing enough or not enough to account for your major life change?
Do you have enough life insurance to cover the needs of your new or growing family? Do you have enough homeowners insurance to safely insure your home and protect yourself from liability? Do you need to increase or decrease the amount you set aside in a health savings account through your health insurance?
Do you need to change the way you are spending? Are there areas where you can cut back on your spending? Are there areas where you should be increasing your spending?
When You Should Update Your Will
While it’s a good rule of thumb to update your will every 4 to 5 years, attorneys recommend that you also update it whenever a major life event occurs. Here is a list of events that should trigger an update to your will.
- You have a new child.
Be sure each child in your family is named in your will and has a legal guardian.
- You get married.
You’ll likely want to add your spouse as a beneficiary (or sole beneficiary) in your will.
- You get remarried.
It is especially important to update your will as family dynamics become much more complex with the introduction of a new spouse and possibly stepchildren.
- Your spouse dies.
You will likely need a new will and should also consider adding a durable financial power of attorney, and a medical power of attorney.
- You have a major financial shift.
Whether you’ve suffered a significant setback or had a financial windfall, you may want to change the allotment of assets, leave a legacy gift to a charity, or add new beneficiaries.
- You become a grandparent.
Consider updating your will each time a new grandchild enters the family if you want to provide for all of your grandchildren in your will.
- You have a major health change.
If you have a new diagnosis that changes your quality of life or projected longevity, review your will while you are still feeling well. You may want to make changes or give assets away sooner, so they are not counted in the estate later.
Major life events can be good or bad, expected, or unexpected. But being proactive about your will and finances can help provide a little peace of mind at a stressful time.
For more information about assessing financial plans and/or updating your will, contact our experts at 610-422-3530.
October 15, 2022