Planning ahead financially when marrying, purchasing a home and starting a family are all hugely consequential events – creating a comprehensive financial plan and saving for future expenses are essential steps towards making them all a success.
Unexpected events can arise quickly and put financial pressure on us quickly; having an emergency savings fund and insurance in place can provide vital relief.
Buying a Home
Home buying is one of the biggest financial decisions most consumers will ever face and one that can be particularly complex. Preparing financially may take years and requires steps such as saving for a down payment, improving credit and understanding monthly mortgage payments to be affordable.
Finding financing to purchase a house is unique among major purchases; to do it properly requires meeting lender loan requirements. This typically includes meeting minimum credit score requirements as well as meeting debt-to-income ratio criteria that reflect your ability to repay mortgage loans.
Save for closing costs and any miscellaneous expenses associated with the purchase, which may prove challenging if this is your first home purchase. Aim to set aside at least two months’ worth of savings in case any extra cash may be needed for repairs unexpectedly.
Getting Married
Marriage or civil union entails significant financial ramifications for both parties involved, including decisions about assets and liabilities to combine or keep separate. Couples should also discuss financial goals as well as strategies to manage daily expenses.
Debt management is one of the primary challenges couples face upon marriage, so it is wise to review any existing debt each person carries prior to marriage and work to reduce it or at least create a plan for managing future borrowing. Furthermore, setting aside savings accounts specifically dedicated to wedding expenses, vacation costs or down payments on homes may be beneficial in meeting financial obligations during marriage.
Reevaluating the beneficiaries and titles of assets such as 401(k), IRAs, insurance policies and any other assets may also be useful, ensuring the correct individuals are listed in case of divorce or another relationship change. Joint checking accounts could help facilitate joint spending and budgeting decisions.
Having a Baby
No matter how exciting it may be to post ultrasound pictures on the fridge and purchase onesies for newborns, having children is a significant life event that entails various one-time and ongoing expenses that have long-term ramifications on both your financial situation and goals.
Maternity care costs can be significant even with health insurance coverage; therefore, it may be prudent to set aside three to six months’ living expenses in a low-risk account (such as money market deposit or savings account) in order to help manage these costs more easily.
Large ticket items to consider for purchase include a new home, baby gear, toys and childcare costs. Consider opening a 529 plan or Coverdell education savings account as an effective means of offsetting college tuition expenses; as well as getting life insurance to ensure your family will be taken care of should anything happen to you.
Retirement
As part of any major change to your career or savings plans, whether that means leaving your current position behind, starting a new path altogether, or taking on part-time work to supplement retirement income streams, it’s vital that you understand its effects on both.
To gain a more realistic estimate, make a set of financial projections that compare how much you need for retirement with your estimated pre-retirement income and expenses. It is usually recommended to plan to replace 70% to 90% of annual pre-retirement income when retiring.
Make sure that you have an emergency fund and long-term care insurance (LTCI). In addition, regularly reviewing your investment portfolio and risk tolerance as you approach retirement is also crucial.
