Financial tips for big life changes
Feel prepared to take on your next chapter or navigate unexpected events with these expert tips.
Aug. 18, 2022
5-minute read
There’s a saying that the only thing that’s constant in life is change, and many Canadians have gone through major life transitions over the past couple of years. For example, according to a CIBC survey, there was a significant spike in the number of Canadians who said they bought a home or had a change in their employment status about a year into the pandemic.
Sometimes life changes are things we plan and look forward to, like getting married or starting a business. Other times, we have little or no control over unexpected changes or we have to deal with challenging circumstances, such as separation, divorce, the loss of a loved one or a job layoff. In both cases, understanding how to make adjustments to your personal finances can help support your financial wellbeing as you move forward. Here are some financial considerations to help you navigate through major life transitions.
Be ahead of the game with an emergency fund
One of the best tools to help you navigate life’s twists and turns is an emergency fund. The pandemic forced many Canadians to consider how they would handle a major change in their circumstances, and the percentage of Canadians who said they were planning for unforeseen events nearly doubled from 2019 to 2022.
Having extra savings set aside gives you a cushion in case of unexpected events like a job loss. Even when you have a planned life change, like starting a family or moving to a new city, extra savings can give you extra breathing room in case there are extra expenses you hadn’t planned for.
Here are some tips on creating an emergency fund:
- Ideally you want to have a dedicated emergency fund with enough savings to cover 3 to 6 months of expenses.
- If you’re not there yet, you can build up your emergency fund over time by saving a regular amount each month.
- It’s a good idea to keep these savings in a separate account so that you don’t accidentally dip into them.
- Consider keeping your emergency fund in a conservative, open investment such as a savings account or a money market fund so your money is there when you need it.
- You can also use a low-interest-rate loan or line of credit as an emergency fund until you have enough savings built up.
Look at your finances from all angles
Life events can affect your finances in many different ways so it’s important to take a holistic view. Here are some key areas to consider when going through a major life transition.
Budgeting
When life changes, often your income and expenses do too. Whether you have a change in your job or family dynamic, it’s a good time to review your monthly budget and cash flow to know where your money is going each month. For example, if your children have finished post-secondary schooling and you’re no longer contributing to their education, you may have some cash flow that you want to redirect towards another savings goal. You can learn how changes to your income and expenses may affect your cash flow with our budget calculator.
Investing
The biggest factors for making investment decisions are your risk tolerance and time horizon, and both of these will change depending on where you are in your life. A classic example is retirement planning. The closer you get to retirement, the shorter your time horizon may become if you plan to significantly use your investments as your retirement income. Some other life changes that may prompt you to reassess your investment portfolio are if you’re newly married and you and your spouse each have a different risk tolerance, or if you’ve made the leap from being a salaried employee to starting your own business and your income may fluctuate.
Estate planning
You should review your estate plan, including wills, powers of attorney and beneficiary designations, every 3 to 5 years, and whenever you experience a major life event. Getting married or divorced, having children or grandchildren or losing a loved one are a few examples of times when you should review your estate plan to make sure it still aligns with your wishes. Buying or selling a home, or starting or selling a business are life events that can impact your estate plan too.
Employer benefits and pension
If you work for a company that offers benefits like health and dental coverage or a pension plan, these can play an important role in your overall financial picture. Perhaps the most obvious reason to review the benefits given by your employer is when you have a change in your career or job status. If your benefits change, you may adjust your budget to put aside more savings to cover out-of-pocket health and dental expenses or adjust your retirement savings strategy.
Changes to your family dynamic are a good reason to take a close look at your benefits. You may want to add or remove spousal coordination on your health benefits, or your employer may offer benefits for parents you can start to take advantage of as your family grows.
There’s a lot to think about, process and adjust to any time you experience a major life change. An advisor can work with you to look at your overall financial picture and help you make the right decisions.
Need some financial advice?
Book a chat with one of our advisors. They can help set you up for success, today and into the future.
