Preparing for Major
Many life events are
directly related to (or cause) financial events that are faced at the
same time. Preparing for the financial aspects of these events can help
to reduce the stress that often accompanies major changes.
home or making major repairs. Home equity loans have become a major
source of funds used when making improvements to homes. The application
process is usually easy and inexpensive with funds available when needed.
This avoids paying interest on funds you don't need. Home equity loans
usually have attractive interest rates and the interest is tax-deductible.
If you are considering a major home improvement, you may want to investigate
this source of funds.
Buying a home.
Buying a first or new home can be one of the largest financial transactions
of your life. Investigating the mortgage options before when you start
looking at homes can help you focus on a home you can afford and help
keep you focused on the home selection and purchase negotiation parts
of the process. You may want to talk to a lender to get some kind of pre-qualification
or at least learn what the current rates are and how much your monthly
payments would be for different size mortgages.
It is seldom easy to change employers. New responsibilities, new co-workers
and a new environment can be stressful. In addition, you will probably
get a distribution from your old employer's retirement plan. Once you
get that distribution, you have important decisions to make. You must
move the funds into another qualified plan or IRA within 60 days to avoid
paying taxes on the distribution. You must also make investment decisions.
Retirement plan distributions are often the largest single sum an individual
ever has to invest at one time. Sometimes, a new employer's plan can accept
transfers as well. If changing jobs is in your near-term future, investigate
your options early and to make the transition less stressful.
After a career, venturing into retirement brings many changes. Along with
Social Security benefits, your existing assets must pay for a major portion
of your living expenses. Your living expenses will probably fall somewhat,
perhaps by 20% to 30%. You will probably want to modify your investment
strategies to be more conservative. While you are young and still accumulating
assets, it can be easier to absorb a fall in the value of your portfolio
because you have time to recoup your losses. During retirement, a significant
fall in your portfolio can be troubling. You may want to consider a more
conservative asset allocation with more of your funds in cash and shorter-term
fixed income investments.
Funding a child's
college education. The cost of a four-year college education is expensive.
Annual college costs at private out-of-state institutions can run over
$30,000. Even state sponsored schools can be at least half that amount.
Paying those college bills can be tough if you do not start saving early.
Make time your ally by establishing a regular savings program and taking
advantage of some of the new tax-advantaged programs like Education IRAs
and Section 529 Plans.