How to Financially Reset Amid a Major Life Change
Life is unpredictable, and it often presents us with unexpected twists and turns. Major life transitions, whether expected or out of the blue can shake up our world. The pandemic served as a global reminder of the importance of adaptability. With much of the world pivoting to remote work, many discovered newfound efficiencies and benefits, including improved productivity, profitability and overall employee well-being.
But it's not just global crises that call for a reset. Personal milestones like retirement, navigating a divorce, receiving an inheritance, experiencing the loss of a loved one, or encountering any major change demand thoughtful planning and strategy.
Creating a financial plan that can bend without breaking is crucial. It ensures you can navigate transitions smoothly and keep moving toward your future goals. Here are some critical areas to consider when you're ready to hit the reset button.
Reflect on Your Goals
After a significant change, it's the perfect time to review your goals. Are you still aiming at the right targets? Perhaps you've been planning on an early retirement, but evolving career opportunities or a new business venture could nudge your timeline in a different direction. Or maybe an unexpected inheritance opens up possibilities you hadn't considered before. Whichever mountain you're climbing, make sure it's the one you truly want to conquer.
Get Your Financial House in Order
Life's changes like those in marital status, or moving to a new area, call for some financial tidying. It's crucial to update the titling of your accounts, your estate planning documents, and the beneficiaries listed on your accounts to mirror your current wishes.
Don't forget to reassess your investment risk tolerance and the adequacy of your emergency funds.
Know Your Numbers
Understanding your financial inflows and outflows is fundamental to effective financial planning. Begin by evaluating your monthly expenses to gain a better understanding of your current spending. Equally important is a review of your income streams, including expected amounts from social security or other retirement income sources when considering your retirement plan. Also, consider your nest egg and determine a comfortable withdrawal rate. A commonly recommended starting point is withdrawing 4% of your portfolio's value.
Both joyous and challenging life events highlight the importance of a strategic financial plan. Collaborating with a financial advisor who is intimately familiar with your personal situation can provide guidance through significant transitions, ensuring decisions are made that lead to the most beneficial outcomes for you and your loved ones.
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