Posted by Melanie Simons.
When I was a child, my grandparents moved halfway across the country to come live in our home. It was an especially difficult time for my mom (their daughter). She already had two kids of her own to care for.
Even more difficult was saying goodbye, when the time came round for them to move out–first to a retirement home, then a nursing home a few miles away.
The financial strain showed on the family bank balance; the emotional strain, less easy to calculate, showed on my parents’ faces. All this could have been minimized, if they’d taken some time to put an initial plan in place.
This lesson came in handy many years later, when I found myself unemployed. Losing a job was incredibly hard, but starting out with a problem-solving, financial-planner attitude made it much less scary than it might otherwise have been.
Big life changes–even joyful ones like marriage and having a baby–sometimes allow us to neglect the deliberate, bigger-picture financial readjustments these life events call for. Chances are you will encounter at least one of these big four events in your lifetime. Here are my tips for getting through them–and coming out the other side happier, healthier, and perhaps even wealthier.
- Getting a promotion. Getting a well-deserved raise triggers serotonin and other happy chemicals. Enjoy the high, but beware these popular kneejerk reactions:
- Upgrading to a more lavish lifestyle. What happens when we get a bump up the ladder (and to our bank balances) is that we sometimes get a little too acclimated to our new, exalted station. This sets us up for a more precipitous income drop in retirement, unless we are also increasing our employer retirement plan contributions in lockstep with a pay increase.
- Neglecting the opportunity to max-out your employer retirement plan. Many recipients of a nice raise or bonus fail to use the opportunity to go all the way–up to the annual contribution limit ($18,500 in 2018). This investment forethought can lead to exponential benefits in retirement. The feeling of watching a portion of your hard-earned compensation grow, will give you a sense of pride, and the peace of mind that comes from taking care of your future self.
- Forgetting tax consequences. And if you choose to defer that raise money into your pretax retirement plan, your taxable income doesn’t go up, so you won’t have to worry about being pushed into a higher tax bracket.
- Under-reporting your income. If your income is not subject to withholding (reported by your employer on a Form W-2), you may be required to increase your estimated tax payments (paid on Form 1040-ES). Getting it wrong may result in a penalty so be sure to consult with a tax advisor on exactly how much to set aside.
- Leaving your debts to grow unchecked. Extra pay is a really important opportunity to pay down your most high-interest debts, including credit card debt and some student debt. Consider making a large lump sum extra payment on your loans at bonus time or increasing your monthly payments when you receive a raise.
- Growing your family. The energy that many couples divert toward choosing a baby name should be equally as focused on pruning your financial strategy, in order to make room for the exciting new arrival:
- Start to incorporate into your budget the additional expenses a baby will likely incur. As your physical resources are sapped in pregnancy, so too will your financial resources be diverted towards purchasing baby supplies, and potentially making up for a temporary loss of income.
- If you intend to go back to work, learn about your employer’s policy regarding family leave and coordinate with your partner. Your return may be tailored to your unique role, so speak to your manager (when you feel comfortable) about backup support while you’re gone. While there’s no requirement as to when you tell your work family about your growing home family, consider sharing in order to allow officemates to be a support system before and during your leave as well as your transition back to the working world. You want your return to be as seamless as possible and your coworkers can help.
- Check in with HR to find out your employer benefits; ask what your health insurance options are. If you’ve got better insurance than your spouse, you might opt to change your plan from individual to family. The birth of your child is a life event that would allow you to change coverage mid-year (you wouldn’t have to wait until the next open enrollment period). You may also learn about other employer benefits that are especially helpful to new parents like flexible spending accounts, for example.
- It’s never too early to think about childcare; most daycares have a waiting list. Consider other options, including nannies, nanny-shares, or leaving your infant with parents or siblings if you’re lucky enough to have an extended family living close by.
- Losing your job. Facing job loss is akin to facing a hurricane: You need to prepare well in advance, and reach for the emergency supplies–or at least a practical checklist:
- Review the unemployment benefits offered by your now-former employer. Assess your severance package and calculate how long it will last (stay in contact with HR).
- Go get a dental cleaning and a health physical, fill a prescription, etc. before you lose your insurance. Research other health insurance opportunities (your spouse's employer, COBRA vs. The Affordable Care Act). There may be some lingering benefits associated with your retirement plan contributions for a short window of time.
- Draw up an austerity budget, allowing you to live on only the essentials: Housing, food, healthcare. Travel, entertainment and shopping go out the window until you land that next opportunity!
- File for unemployment benefits, if you’re eligible through your state. Do it right away.
- Begin your search: Work on your resume, get online and reach out to people in your network. Treat it as a full-time job. Your self-esteem may be at a low. To keep you in a positive frame of mind, commit to making moves every day, even if it’s micro-progress to maintain the sense of moving forward. Start a journal in which you track everything you do each day to move you closer to your goal of finding a new job.
- Caring for a loved one.
- If you find yourself taking care of a loved one, like my mother did for her parents, it’s crucial that you assess their current financial picture, including all assets, liabilities and expenses. Sitting down with them and going through their assets may be impossible, so it helps to know in advance where their assets and bills are located. Consider holding a “Family Meeting” now, to ensure you’re well prepared for future caretaking responsibilities and preferences. I know that can be awkward. Here’s a handy guide to starting the conversation with your parents.
- Understand what type of care they need–and want. In the case of an elderly loved one, will home care from you or a professional be adequate, or will they need to give up their home in order to move into an assisted living facility? Such decisions aren’t easy, and everyone’s needs should be accommodated.
- Make use of resources like CMAcares.com which can help you compare the options in your state.
Life changes can be exhilarating, exasperating, or both. Your old way of doing things will have to be optimized for your new situation. The trick is to put new plans in place from the outset, fully preparing yourself for the exciting transformations ahead.