Life changes that affect your finances
Most of us are very predictable. We go to the dentist once or twice a year to get our teeth cleaned. We go to the doctor for an annual physical. We even get our oil changed every 3,000 to 5,000 miles. Yet, we don’t follow suit when it comes to our finances. So, you think you don't need a financial check-up? Let's look at some common life events and their financial impact.
Birth of a child
A new child brings new responsibilities. Current life insurance coverage may need to be updated to provide for income replacement and education funding in the event of an untimely death of a bread winner. Beneficiaries should also be updated to properly provide for the child. Update your will to determine your guardianship wishes rather than letting the courts decide. Finally, take advantage of pre-tax opportunities to pay for medical and dependent care costs.
Change in employment status
It doesn't matter if you quit, were laid off, retired, or changed employers all of the above have consequences. Will your medical coverage continue or will you have to change carriers? Do you have life insurance outside of group term that expires when you leave your job? Will there be an income gap until the new source of income is available? Try to anticipate consequences and have a plan.
Buying a home
If you go from renting to buying, you may be pleasantly surprised come tax time. The ability to deduct mortgage interest could result in a tax refund or you may opt to change withholdings on your W-4 to get more of that money in each pay check throughout the year. The equity you establish in your home can later be a valuable source of funds for expenses such as college education or home improvements. Life insurance coverage may need to be increased as you have additional long-term debt.
Selling a home
In contrast to the above, what if you sold your home and are now renting? Are there tax consequences from the sale of your home? Will you still be able to itemize deductions? What is your plan regarding moving expenses? The list of events could go on forever. The bottom line is that the only certainty is change. Take this opportunity to think through your life changes over the past year and whether you need to discuss your options with a financial professional.
