Albert Einstein said, “The measure of intelligence is the ability to change.” The only thing certain about life’s uncertainty – and the big changes like a divorce or death – are disruptive, emotional, stressful, and full of difficult decisions. One of the biggest stressors is how to adjust financial plans in the wake of these significant changes.
During transitional times, it’s common to feel “out of control” as you adjust to these changes. One thing you do have control over is creating – and following – a financial plan, which can help ensure your financial successes.
During a transition, it’s wise to:
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Create (or adjust) your financial plan. If you don’t know where you’re going, you will end up someplace else! It’s critical to have a financial plan to serve as a “road map” to your financial health and well-being. A financial plan is not a one- time document, but rather an ever-evolving thing that needs to change as your situation evolves.When creating (or revising) your financial plan, assess your situation, considering your income, expenses, savings, investments, and debts. Then, set realistic goals and outline actionable steps to achieve them. A strategic financial plan can offer reassurance and direction during times of transition.
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Work with a financial professional. Life changes are typically emotional, which can potentially hinder your ability to make clear-headed financial decisions. It’s often said that you should avoid major decisions for the first year after a traumatic event. While it would be nice if the world stood by and waited for us to heal, some decisions need to be made. Work with an experienced financial advisor who can stay objective, providing guidance based on your personal circumstances, needs, and goals.
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Create a budget. Following a budget is a good idea at any time, but can be particularly helpful after a big transition that may have shifted your financial circumstances. For instance, if your partner died and you’re losing their second income, how will you cover your expenses? Or if you’re going through a divorce, you may now need to fund two separate households, and potentially pay for childcare if a stay-at-home parent must now go back to work. After a big change, reevaluate and adjust your budget accordingly. Determine where you can trim expenses and reallocate funds in your new normal.
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Ask the right questions. If your partner died, what’s the life insurance payout, and how should you invest that money to maximize the benefits? If you’re retiring, how will you change to letting your money work for you and manage cash flow in a way that will allow you to maintain your preferred lifestyle? In a divorce, how will you split your assets? If your child was diagnosed with a major illness, how will you manage the significant, ongoing, and unexpected medical expenses?
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Secure proper coverage. The best way to be ready for a major change is to prepare in advance. Double check that your insurance policies are comprehensive, including homeowners’ and umbrella policies, as well as life, auto, and health insurance.
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Understand the psychology of money. Death, divorce, or job loss can have significant – and potentially life changing – financial ramifications. Not all of these are negative on the family balance sheet, but when your financial circumstances are suddenly and dramatically changed, it’s important to understand your own underlying psychological and emotional connections to money and how that impacts your decisions. There’s a reason that lottery winners are seldom more happy or successful after winning. Take time to make sure you stay true to yourself in the face of change.
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Retain some liquidity. During a difficult transition, don’t have all your funds tied up in investments or retirement plans that are difficult to access – or that you can’t touch without penalty. Having liquidity provides a “financial buffer” so you’re prepared for any unexpected expenses. It also helps prevent you from going into debt – or paying steep early withdrawal penalties – to cover these costs.
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Don’t get overwhelmed. Life changes can be emotional and confusing, especially as you navigate things like probate, life insurance claims, courts, child support and alimony, 401K rollovers, and/or other complex financial issues. Take a deep breath and rely on an experienced, trustworthy, and compassionate financial advisor to support you through the process.
The most important thing to do is ensure that your financial plan reflects the changes in your personal – and financial – circumstances. During difficult and uncertain times, it’s essential to take control of your finances, using this plan as a guide as you work towards financial health and stability.
Paul S. Stanley, CFP®, CPM®, CFF®, Managing Partner at Portsmouth, NH-based Granite Bay Wealth Management, was recently named Best-in-State Wealth Advisor by Forbes. His team of smart, experienced financial professionals work hard to help clients maximize successes with their investments and financial plans. For more information, visit https://granitebaywm.com.
