Major life transitions come with an expected emotional toll, but until you face a life-changing event yourself, you may not fully realize the impact it can make on your personal finances. Many of life’s major events come with a slew of unanticipated expenses that can leave you reeling.
The good news is, everyone makes mistakes that have financial ripple effects they never intended. Beating yourself up over transitions that lead to a negative economic outcome does not mean you’re foolish or unintelligent. It simply means you’ve joined the ranks of those who have been there, done that and lived to tell the tale, so applaud yourself on your newfound wisdom while also bracing yourself for what may come.
Here are a few steps to consider if you’re dealing with a change, whether it’s a graduation, career switch, a bad breakup or more.
1. Focus on Your Emergency Fund
If you’re starting a part of your life over, your emergency funds have probably taken a hit. And that’s okay — that’s what they’re there for! But when you feel like you’re getting back on track, make sure you budget what you can to slowly build your savings back up. It’s always better to have financial support in place for the next major transition.
I felt the horror of losing my emergency savings firsthand when I moved hours from home after graduating college. While I was eager to start my adult life, everything I had carefully saved working my part-time job over four years vanished in less than a month. Purchasing a used car? Poof, thousands of dollars gone. Putting down a security deposit and first and last month’s rent for my new apartment? Another $2,000 down the drain.
By the time I started working, I had never been in greater need of a paycheck in my life. And although it was tempting to invest in real furniture and start saving to visit all my college friends, resurrecting my emergency fund became key to my stability in those first few months.
Here are a few pro tips:
- Figure out your overall plan for your emergency fund. What can you afford to save? Even if it’s just enough to create a buffer for unexpected expenses, it’s better than nothing. If you want six months of expenses or enough to survive job loss, then you’ll want to create a long-term saving strategy to help you reach that amount.
- Make it less accessible. The best way to grow your emergency fund is to avoid touching it for non-emergencies. If you’re prone to cheating a little bit, make sure you’re not tying your fund to a debit card. I shuffled it to a high-interest savings account separate from my normal bank, which helps me avoid using my savings and also helps the account grow a little faster.
- Automate! I calculate how much I can afford to save every month and automatically send it to my emergency fund first thing. Trust me, it’s a lot more likely to get done if it’s out of my hands.
2. Don’t Make All Your Assets Unreachable
While it’s sometimes hard to control, keeping your housing costs to a manageable percentage of your income can be a huge help when you’re getting back on your feet. Whether you need to find a new place or you’re struggling to deal with a current lease, it’s crucial to avoid situations where your budget is eaten up by your living expenses.
If you’re looking for a new place, for example, then carefully plan out what you can afford. Most experts recommend capping costs at 30 percent of your income, although this will partially depend on the cost of living in your location. The more uncertain you are about your budget, the less you should stretch. Sure, a beautifully updated apartment in walkable location would be a dream, but is it worth sacrificing your savings goals?
If you’re dealing with the loss of a partner or roommate, on the other hand, you might find yourself on the hook for more rent and utilities payments than expected. The best you can do is work out agreements with the other parties, whether it be your ex-roommate or your landlord. Prioritize finding a new tenant to help you with expenses or hold the other person accountable for making up their share of the rent.
Life transitions, whether they are moving, career changes or breakups, can create sticky housing situations. Always try to keep your new housing situations well within the realm of affordability, and remember that clear communication can sometimes make a difference in your landlord’s acceptance of troubling financial issues.
3. Live Within Your (New) Means
One of the hardest parts about dealing with financial setbacks is realizing how much they can affect your day-to-day life experiences. The grocery list you’ve kept for years can suddenly take up too much of your new budget. Your attempts to keep up a social life can sabotage new savings goals. And perks that you have become accustomed to —like developing a morning coffee habit because your old job had a cappuccino maker — might suddenly disappear.
When you’re dealing with a change, make sure you’re consciously changing your lifestyle to accommodate it. This can be especially vital when your income changes, especially following job loss or career change. My sister recently started an MFA program, where a stipend cannot possibly cover her current spending habits. A good friend is leaving military life after years of service, and learning to balance a budget without many of her previous benefits. Lifestyle adjustments can help you bounce back more quickly from even the most dramatic transitions.
For example, transitioning to freelance income forced me to take a hard look at my habits. Though I had cut some of the obvious luxuries out of my budget, I didn’t realize how much I needed to adjust. I was used to purchasing new shoes when I wanted them and spending on snacks, but these old habits were holding me back from rebuilding my savings and preparing for my future.
We get used to our standard living expenses. So even when you know things have changed, you might still be leaning into habits you can no longer afford. While you get your finances back on track, it’s important to adjust your lifestyle so it matches your current reality. With some smart planning, you can hopefully get those luxuries back soon enough.
Finding Lifelong Financial Security
Adulting means discovering that much of life remains a matter of chance. One relationship or job gone wrong can devastate your finances. Prevention remains the best cure, so all women benefit from saving money early.
However, you also win by weighing the economic impact major life transitions can bring so you can make the best choices. It’s not a bad thing to be set back because you needed to relocate, find a new career or start over. These changes can cause strain, but they also create growth. These tips should help you enjoy that growth a little sooner.
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