According to a study by the American Institute of CPAs, more than half of American adults have delayed at least one important life decision in the past year due to financial reasons.
This is a huge increase from a 2007 survey, which showed only 31 percent of respondents had delayed a life decision for financial reasons. The most-delayed life events were higher education (24 percent), buying a home (22 percent), medical procedures (19 percent), retirement (18 percent), having children (13 percent), and getting married (12 percent), according to the survey
While he has seen some clients delay weddings due to finances, CERTIFIED FINANCIAL PLANNER™ Robert Graves of Glendora, Calif., says careful budget planning and saving in advance can help you prepare for the huge financial changes that accompany a major life event.
And while some other big changes like medical emergencies often occur out of the blue, you can still take steps to help prepare yourself to ride out the financial storm.
When you can plan ahead for a budget change
When anticipating a life event you can plan for, pick a goal date for that change, set your budget, and work backward to create a savings plan, Graves suggests.
“If you know you’re going to spend $50,000 [on a wedding], then figure out how much you’ve got to put away each month so you’ll have money ready when you start making reservations down the road,” he says.
Budgeting for children is more difficult to calculate, but Graves says he sees some of his clients putting off the decision to start a family until they’ve saved what they deem is “enough to get them started.”
Preparing for the unknown
Graves says medical emergencies are the most common type of unexpected expenses he sees his clients struggling to cover.
The general rule of thumb for being prepared for a financial emergency such as loss of a job or a sudden medical issue is to have an emergency fund set up with enough cash to cover about six months’ worth of expenses, Graves says.
“If you spend $5,000 a month and that covers all of your basic expenses, then have $30,000 saved for emergencies,” he says. “You’ve got to start putting money away not knowing when you’ll need to use it.”
Save first, spend second
Start your savings plan by compiling a list of your monthly expenses and comparing that against your monthly income. Once you’ve identified your monthly spending and are ready to trim your budget, the first place to start is credit card use, Graves says. You also need to stay on top of your monthly card payments.
“Pay them off at the end of each month,” Graves says. “Otherwise the interest can be so high you’ll never catch up.”
Graves also advises clients to “pay themselves first” when they receive a paycheck.
Get into the habit of putting aside money for savings from each paycheck before you spend anything, he says.
“Start with whatever you can start with, even if it’s only $100 a month,” Graves says. “If people can start [saving when they’re] young and get used to putting [money] away—[even]put 10 percent away—and live on the balance, then they’ll be alright.”
Even though big life changes can devour a big chunk of cash, proper planning and saving can help soften the blow to your bank account.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.