John Lennon once famously said that “life is what happens when you’re making other plans.”
So it goes on the financial planning side of life, where major lifetime milestones like marriage and retirement bring with them not only a highly emotional experience, but cash-related consequences, too — good and bad.
Unfortunately, not all of us are prepared financially for major life events.
A recent study by the BMO Wealth Institute, reports that 60% of survey respondents feel “largely unprepared financially to deal with major life events.”
Getting good advice helps deal with huge life milestones. A separate study from Vanguard Funds shows that investors who employ a financial advisor earn 3 percent more annually in portfolio gains than those who don’t — in any circumstance.
While I advocate the counsel of a financial professional regarding any major life experience, what life experiences deserve the most attention, whether you seek professional advice or not?
It's a critical question. The financial impact of life-changing events is certainly an issue I frequently hear about professionally, and ponder myself personally.
These five “big financial days” get my vote — life events that should command your unwavering attention, as well.
1. Your first professional job — life events catalyst
Some say your college graduation is the first big life experience that brings money into the equation, and I get that (especially if you need to start paying down significant student loan debt). But I believe one’s first career job gets the nod, as it gives you a grand opportunity to start investing early for retirement in a company 401(k) or other retirement plan. Plus, a first job is likely the first time you’ll be managing a regular decent-sized paycheck and managing cash flow. Thus, advice from a parent or trusted financial professional is certainly in order.
2. Your wedding day
When those wedding bells ring, another bell should be ringing, too — letting you know you’re part of a team now, with more family members likely to come. This is where budgets, savings, spending and debt really come into play, along with key financial loves like buying life insurance and home insurance, after the purchase of your new home — which, coincidentally, is the next item on the list.
3. Your first home purchase
When you put down (ideally) 20 percent of the purchase price for a new home, it’s likely the most money you’ve spent at one time so far in your life. Intimidating? Yes. But use it as a learning experience, too. A home, once and forever, should always be viewed as a wonderful place to build memories. That said, it’s a financial planning experience, too, as you’ve likely engaged a real estate agent and broker, an appraiser, a banker or other mortgage lender, an insurance agent (to buy home insurance), and a host of contractors, painters and plumbers, not to mention ever-frequent trips to Home Depot and Target. All cost money and all offer useful money-management experiences to learn from.
4. Your first baby (building a family)
When you think about it, holding your healthy, new-born baby may be the happiest and best day of your life. Sure, there’s a decent argument to make for your wedding day, but creating a brand-new family is as big as it gets. Use the experience to immediately begin building a college fund for your new son or daughter, and watch in delight as they grow — and watch his or her college fund grow, too — over the next 18 years.
5. Your retirement day
Calling it a career is a major life event, and a bittersweet one, at that, considering how much you’ve invested in your working years. Ideally, you’ve been preparing for that day for decades, and have enough cash saved to live in a comfortable retirement. But there are other financial considerations that deserve serious thought in retirement, including when to take Social Security, how to plan properly for potential long-term medical care needs (start that one earlier than your retirement day with a good insurance plan), health care insurance, and whether or not you want to ever go back to work in some capacity, to keep active and to supplement your retirement income.
Others may have their own ideas on what days matter the most, financially, in your lifetime. To me, the five listed above should be on any “lifetime milestone” list, and deserve some clear and compelling focus on the day they arrive in your life.