How to Manage your Money through Life Transitions

How you handle Life Transitions or Changes? Before this let me share my experiences…

During our recent conversations with many investors I have observed that most have not been through a financial planning exercise for their finances. They have been investing mainly based on whatever a friend or family suggests. Some have been following what their parents and earlier generation thought was appropriate investment options.

So, when faced with a decision on the choice of investment options, many do need some direction and hand holding. In addition, I’m certain that if I posed a question to you, as a reader, you may also be in a similar situation wherein you may not have put much thought to what you have invested in and what you would like your investments to do for you.

What are Life Transitions?

As is usually the case, in our financial planning work with clients, we do find that there is a long list of wants and needs that you want your money to fulfill. Topping this list is are the big items such as children’s education, children’s marriage etc. But somewhere investors tend to forget that each such milestone is infact a life stage and a life transition, which brings along with it many changes – social, emotional, psychological as well as financial.

While the social, emotional, psychological changes are very well understood and handled by most families, the financial changes that big life events bring along are most often neglected or not paid due attention till the last minute.

Infact today, more than ever, most families are facing multiple life transitions without even realizing the frequency with which this is happening. On the other hand, most families are thinking that the investments they are making in bits and pieces will help them as and when these transitions arise.

Read – Financial Planning for Different Stages of Life

List Of Life Transitions

Major life transitions examples and related financial implications are:

  1. Child moving out of home for education – example – children moving to a different city or maybe a different country altogether
  2. Child’s marriage and the associated funding requirements-
  3. Job losses / Job changes which lead to temporary loss of income
  4. Relocation to a new city or country which may lead to extra expenses to settle down in a new place
  5. Becoming an entrepreneur, which may mean planning buffer finances before the new income stream becomes predictable
  6. Retirement which is a big change after a couple of decades of a working life
  7. Dependent parents and long-term care which can bring along big financial commitments towards medical and support system related expenses
  8. Sudden illnesses and associated medical expenses which can cause a dent in the finances temporarily or on a permanent basis depending on the severity of illness
  9. Divorce which can cause disruption in finances for both the spouses
  10. Widowhood which again could leave the widowed wife clueless about how to manage the finances
  11. Wealth Inheritance may lead to unplanned and hurried financial decisions which may not necessarily be in line with your thoughts and goals
  12. Sudden Demise of family member could leave the rest of the family in a quandary as they could face issues with access to the wealth of the deceased income earner

As we can see from the above examples of Life Transition periods – almost in all cases of life transitions, there is a common thread. The commonality is that whether one acknowledges the fact or not, these life transitions do affect your finances whether positively or negatively. Even if there is no direct impact, these life transitions usually tend to affect families emotionally thereby leaving them with lesser time and mental stamina to focus on finances and investments.

Read – Retirement Planning at Various Stages of Life

How to Handle Life Transitions 

These transitions also naturally do tend to unsettle your financial and investment plans at different points in your life.  One of the ways that life transitions can be managed is by putting thought to what events life may come up with and being prepared financially for these events with a plan. It also may be wise to have clearly identified investments that you may dive into when these transitions materialise. Financial Planners call this “what if” scenario analysis.

Responses to Financial Stress at Life Transition Points

If you are already going through one of these life transitions or foresee a life transition in the near future, it would be prudent to consult your financial planner about it. What would happen if, the what-if scenario actually happens?” Well, I would say in that case it’s better to be prepared, than be sorry. Check – Growth is Life

If you are going through Life Transitions – feel free to ask any question in the comment section.