Major life changes often occur when we least expect them. Fortunately, with a bit of preparation and quick thinking, you can handle just about any financial setback life throws you. Here are three curveballs you may encounter along life’s journey and how to cushion your finances from the impact.
You hope your love will last forever, but sometimes it just isn’t meant to be. Your heart may be breaking right now, but you’ll want to think of ways to save as much cash as you can. One way to do this is to consider working with a divorce mediator. Mediation, which tends to take less time than litigation, can help you avoid divorce court, which could save thousands of dollars over time. Websites such as DivorceNet and Mediate.com can help you locate a divorce mediator.
If you’re still married but foresee divorce in your future, take steps to get your finances in order now. Go over your credit reports and make sure to correct any errors and address debts linked to your name that do not belong to you. “If you suspect that your spouse is planning a divorce, make copies of all important financial records such as account statements (savings, stockbroker, real estate partnership) and data that relates to your marital life style (checking accounts, charge card statements, tax returns). If you believe that your spouse may liquidate or retitle marital assets, notify the holder in writing and get a restraining order from the court. Watch out for cash in joint checking, brokerage accounts or cash value of life insurance. If assets are taken, legal and forensic accounting fees could become excessive,” advises Certified Divorce Financial Analyst Lee Slater.
If you don’t have a separate bank account, now is the time to get one. Figure out how much cash you’ll need for life on a single income. Start reworking your monthly budget and cut back on items you don’t need so you can get used to this new standard of living. This way, it won’t be such a shock once your divorce is final. Also think about where you’ll live and start saving for a downpayment.
Unfortunately, an unexpected job loss will be a reality for most workers. While unemployment checks will help relieve some of the financial pressure, they likely won’t meet all of your monthly expenses. This is where your emergency savings fund comes to the rescue. Financial planners recommend setting aside three to six months of expenses, while others say six to 12 months is best. Having a healthy emergency savings fund will reduce the likelihood you’ll have to rely on credit to bridge the gap. Avoid digging yourself deep in debt by building a healthy cash cushion. If you are currently employed, now is the time to prepare for a job loss. Whatever you do, don’t delay. Begin putting cash away now; you never know what tomorrow may hold. If you’re just starting to save, your best bet is to aim for a three-month savings fund with a goal of eventually reaching 12 months.
Another money move you’ll want to make after losing your job is to look for part-time employment. Working part-time will prevent you from spending your hard-earned savings too quickly. You’ll also narrow any gaps in employment. Avoid the tendency to wait for the perfect job. Sometimes it’s necessary to take a job that fits your situation right now. Caroline Ceniza-Levine, career coach and founder of SixFigureStart, recommends taking a “right-now” job until you find the right fit. “Yes, you want to find a job, but you also want to find the right job. What is the right job right now? It might be a temporary one for cash flow. It might be a lateral move to learn some new skills. It might be moving to a different industry that has always interested you. The silver lining of a layoff is that you have this opportunity to find a new job,” said Ceniza-Levine.
3. A surprise delivery from the stork
Children are a blessing, but when you’re unprepared for a new baby, the financial burden can fill you with overwhelming stress and anxiety. The average cost to raise a child born in 2013 is roughly $245,000 according to a 2014 report released by the United States Department of Agriculture. This is a 1.8% increase from the year before. Fortunately, you have roughly nine months to prepare (unless you get the news late or have a preemie).
As soon as you get the baby news, start socking away as much money as you can. And don’t be shy about to asking friends and family for help. Also avoid the urge to purchase everything new. Accept gently used baby items and see what you can find in thrift stores. Finally, take advantage of discounts, samples, and giveaways. Retailers such as Target and Huggies offer discounts and free baby items to new parents.