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Planning for buying a home

Big Life Events: How to Financially Plan for Them

Life is like a roller coaster! Sometimes you will be laughing with your arms up in the air, and other times it will make you feel like you want to puke. It may not seem like it, but it is those puke-inducing moments that make the fun times so much sweeter. Everything is about balance, and that applies to your financial planning as well. You must plan for big life events including the Good, the Bad, and the Ugly. We won’t go too far into detail, but here is a quick overview.

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Planning for Big Life Events

The Good, the Bad, and the Ugly

The Good:

There are so many incredible aspects of life that we get to look forward to as we make our way in the world. This can include going to college, starting a business, getting married, buying a home, having a baby, moving across the country, receiving an inheritance, retiring, and so much more. Planning for these moments is easy, but we will get there in a minute.

The Bad:

There are always two sides to a coin, and with every good moment, there is the potential that it may not go according to plan. This could be popping a tire on your car, identity theft, spraining an ankle, having your basement flood, getting robbed, or any other horrid thing that we hear about on the news. All of these events suck, for sure, but you can deal with them. It may be annoying, but you can fix it.

The Ugly:

Lastly, there are moments in life that are going to be downright ugly. Sometimes, we see them coming, and other times they smack us right in the face. Some of the Ugly could be getting divorced, losing a job, business failure, sustaining a significant injury or disability, loss of a spouse, death of a parent, or even your own death. We know that it is no fun to think about, let alone plan for, but taking the time to prepare for the unexpected can save your loads of headache in the future.

The Importance of Planning

If you are reading this article, it is likely because you are financially savvy (or working on it) and are thinking about a big life event coming up in your life. We want to give you props for being ahead of the game, and planning for it! Awesome job!

Planning is vital to maintaining a well-rounded and thought out financial investment strategy. Take a quick moment and think about how much it costs to go to college, host a wedding, or buy a house. Ouch! It certainly isn’t cheap! Most individuals don’t just have that kind of money lying around, which means we need to plan for those big life events. 

Create a Financial Plan

Through the Good, the Bad, and the Ugly, we can create a big life event financial plan to help get us through it all. Let’s get started!

Planning for the Good Life Events:

The expected, exciting big life events are easy to prepare for. You know when you are going to start college, you know when you hope to buy a home, and you know (roughly) when you will retire. Since you know the deadline, you can work backward from there. To break it down quickly, you just need to know how long you have, how much you need to save, and how much you are currently saving. Let’s look at Joe and Jill Oak as an example. 

Planning for buying a home

Joe and Jill Oak are a married couple thinking of buying their first home. They have steady jobs and want to settle in the same area that they are renting in now. They have done their research and estimate that they would like to buy a $250,000 home in two years. They know that they can get a standard home buyer’s loan from the bank, so they just need to pay the down payment and closing costs. At 20% as the norm for down payments and an estimated $3,000 in closing costs, they calculated that they have to save up $53,000.

$250,000 x 20% = $50,000 + $3,000 = $53,000

Now, they take the amount that they need and divide it by the time they have before the deadline. Joe and Jill want to buy the home in two years, which means that they have 24 months to save up the money. Luckily, Joe and Jill are smart! They have been thinking about buying a home for a while. So they have been tucking away spare cash into an Index Fund when they could. They already have $10,000 saved, which they plan on using for part of the down payment. So, in reality, they only have to save up $43,000!

$43,000 / 24 months = around $1,800 per month

To make this example easy, we are going to assume that Joe and Jill both make the same amount of money, and they split all costs evenly. At the end of each month, after they have calculated their monthly expenses, Joe and Jill combined save about $2,000 a month. Whoo-hoo, easy peezy, and done!

But life isn’t nearly that simple! Joe and Jill each put some of their savings into their IRA each month. They are also saving up to have a baby and to go on vacation to Europe. This means that they aren’t quite saving up enough each month…

Yet, Joe and Jill are determined! They want that house! What do they do? They decide to skip their Europe vacation and go on a shorter and closer vacation. In addition to that, they implement cost-cutting techniques to save extra money. Now, at the end of each month, they are saving $1,800.

Skip ahead two years into the future. Joe and Jill signed the final papers of their brand-new home, have a baby on the way, and are still on the fast track to a successful financial future.

The whole point of that example was to show you that planning for the future is possible and not nearly as hard as everyone thinks. Obviously, your life may not be as cut and dry as Joe and Jill Oaks, but that shouldn’t stop you from taking action. Begin by talking to friends and family about their financial planning, consider consulting with a financial advisor, or do some independent research. There are so many financial planning apps for college, weddings, home buying, and retirement that can help you too! All you have to do is take the first step.

Planning for the Bad Life Events:

You know the famous law that says, “What does up, must come down.” Sadly, that happens with life too. Life isn’t perfect, and sometimes bad things happen, such as getting a flat tire or getting your credit card stolen. Before you freak out, I promise that you can handle it. The best thing that you can do when planning for the Bad is to maintain a sizable emergency fund. An emergency fund is essentially a chunk of cash just sitting around (untouched) in case something goes wrong. When you need quick cash, it is there to help pull you out of the gutter. For more information on this, read our post about emergency funds!

Planning for the Ugly Life Events:

Let’s be real; planning for the ugly is like planning to get slapped in the face. It is highly unlikely, unpleasant to think about, and usually comes with circumstances that we would never have expected. Sadly, it doesn’t mean that it is impossible.

Dented Car

When planning for the Ugly, you will have no idea how much you should save. You will have your emergency fund waiting, but it may not be enough if it is a super ugly event. That is why we recommend having a decent portion of your investment portfolio to consist of mutual and index funds. They are easy to cash out, and you won’t take an incredible loss by doing so.

You also want to make sure that you have insurance policies in place that are appropriate for your lifestyle. The ugly moments in life are exactly why it’s smart to have home/renters insurance, car insurance, health insurance, life insurance, etc. Take the time to evaluate your life and speak with trusted insurance companies. You hope you never have to depend on any of these, but they can literally be life savers.

Time to Plan for Big Life Events

Taking the time to for good, bad, and ugly big life events is an essential part of your financial future. It may not be sunshine and rainbows as you plan, but the burden of worry will be lifted because you know that you are prepared for whatever life will throw at you. If you are ready to get started, we suggest reading our article on How to Set a Budget, so that you can easily fit everything in and get started on your planning!