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We map our lives through major events — milestones mark every transition from youth to old age. We look forward to marriage, children, a new home, college, retirement, and securing our legacy. While these milestones are deeply fulfilling, they also bring unique challenges. Moreover, each of these comes with financial implications.
As we go through life, we need to be able to meet our goals and manage the financial demands attached to them. We must balance our aspirations for stability, success, and happiness as we develop capabilities to deal with unexpected challenges.
Major life events don't just refer to accomplishments. There are also negative occurrences like divorce, disability, or the loss of a job. Consequently, you can't live perfectly, but you can plan for contingencies.
For residents of Richmond and the broader Virginia metropolitan area, preparation is not just beneficial — it’s crucial for long-term financial stability. According to the latest TIAA Institute study on financial preparedness, 41 percent of Americans lack an emergency fund. Of this segment, 30 percent cannot generate $2,000 immediately. Hence, about 12 percent of Americans are severely strapped for emergency cash.
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Identifying the specific life events that require substantial strategy and financial planning is essential to prevent financial insufficiency. Here, we focus on setting realistic goals, choosing effective financial products, and adapting personal finance strategies to navigate life's changes smoothly.
Major Life Events Requiring Significant Financial Planning
As you move through life, you must anticipate primary financial needs as accurately as possible to maximize rewards and avoid setbacks.
When you get married, buy a home, start a family, pay for college, move to another state or country, or retire, you will be saddled with significant financial commitments. To handle these life events successfully, you must plan carefully and clearly define your short — and long-term goals.
Marriage
When you get married, you combine lives, households, and finances. For blended families, the process can be particularly complex. Marriage can also be complicated for those who come into it with substantial wealth or assets.
Sound planning goes a long way in determining the success of your marriage. Your joint plan must include a review of your joint savings, investment preferences, risk tolerance, and vital protections such as insurance coverage.
Before marriage, you must also discuss how you manage your finances moving forward. Newly married couples must decide whether to put their money in joint or separate accounts. Initially, keep separate accounts as you transition into marriage.
Keeping separate high-yield individual savings or checking accounts could benefit you in the long run as it promotes financial independence. For example, opening a checking account online through a reliable fintech company like SoFi earns you six times the national average checking rate without fees.
With this method, you earn substantial interest separately. You are each responsible for your spending habits and paying off the debts you've brought into the marriage. This is the most equitable or fair system for couples who split their bills to organize their earnings and finances.
Buying a new home
A home purchase is a significant commitment and financial investment. Whether single or married, you must prepare a substantial amount for a down payment.
In Richmond, the median home price as of 2024 is $354,036. It has increased by as much as 4.6 percent over last year’s price.
Saving for a down payment amid rising home prices requires careful budgeting and long-term savings. A typical 20 percent down payment based on the median price would amount to $70,807.20. Without proper preparation, this figure could seem daunting. However, with a well-thought-out savings plan, it becomes achievable.
To prepare for a down payment, you must set a savings goal. To ensure you steadily build towards your target, you can use free online budgeting tools, set up high-yield digital savings accounts, and facilitate automated transfers to your home fund.
Establishing a sufficient emergency fund is essential to cushion yourself from unplanned expenses that could arise during homebuying, such as home inspections, repairs, or sudden changes in market conditions.
Starting a family
Starting a family introduces a new layer of financial responsibility. According to a 2023 study, the average cost of raising a child in the US to 18 is $237,482. This only involves basic or barebones expenses like food, rent, and childcare.
Thankfully, the cost of living in Richmond, VA, is four percent lower than the US national average. Nonetheless, the numbers may be overwhelming to most middle-class families. Breaking down these costs into manageable categories helps.
You can segment your budget into daily expenses, a healthcare emergency fund, a college savings plan, a retirement plan, and investments. Prioritize essentials over impulse expenses. Set a manageable savings goal. Using basic budgeting skills, you can be better prepared for the daily demands of family life and unexpected events.
Paying for education
As college costs soar, students and parents must plan carefully to afford higher education. The 529 plan is a tax-advantaged savings tool for American families to help fund education. It is named after the Internal Revenue Code's Section 529, originally designed to cover postsecondary education costs.
The scope of the 529 plan has expanded to include covering K-12 and apprenticeships. Later, the SECURE Act of 2019 and the SECURE 2.0 Act of 2022 enabled 529 funds to be utilized in Roth IRA contributions and student loan repayment. Thus, it can be a powerful tool for securing education and life savings.
In Virginia, 529 plan contributions of up to $4,000 per account per year are deductible when computing taxable income. They also have the added benefit of an unlimited "carryforward" of your excess contributions. In addition, contributions are fully deductible in the year of contribution for VA taxpayers who are at least 70 years old.
Financial windfalls: inheritances, pay raises, and profits
When you receive a bump or improvement in income, you must use it to your advantage. A significant pay raise, inheritance, sudden influx of profit in a business, or other types of financial windfalls can provide an ideal opportunity for you not only to increase your savings for retirement but also your other goals.
Use the windfall to get ahead in paying your debts, make investments with reliable returns, start a new business, or purchase an appreciating asset. All of these decisions help you build wealth and become more financially resilient.
Retirement
Retirement signals a new phase in life. It signals the end of the accumulation phase and the beginning of the distribution phase of your income. Most people earn less in retirement and draw upon their nest egg or life savings.
To retire comfortably, you need to plan long-term. According to Fidelity’s 2024 Retiree Health Care Cost Estimate, the average 65-year-old will need about $165,000 in after-tax savings to cover their healthcare expenses. The amount is a five percent increase from 2023.
Richmond’s relatively low cost of living makes it an attractive place to retire, but Richmond residents still need extensive preparation to catch up with rising healthcare costs in old age.
You must be mindful of crucial decisions at the peak of your earning potential. These decisions include how you accumulate savings and investments and when you stop working. You must also plan when to take Social Security, how much to save for an emergency fund that considers health care, and how to generate cash flow from your retirement assets. Such decisions interconnect. Collectively, they make a dramatic difference in your retirement lifestyle.
Edward Cisneros on Unsplash
Should you take Social Security at 62 or postpone it?
Around 30 percent of early retirees who claim their Social Security benefits at 62 use the funds to pay for health care before they become eligible for Medicare at 65. However, postponing retirement with the assumption that you have sufficient money to cover immediate health care costs will defer your Social Security benefits, thus increasing them. You can even choose to wait until age 70. The longer you wait, the more you can collect, assuming you live and stay healthy long enough.
Retirement accounts
Like anyone in America, Richmond residents will benefit from contributing consistently to retirement accounts such as 401(k)s, IRAs, and Roth IRAs. These accounts offer tax advantages that significantly boost your retirement savings over time.
Roth IRAs enable tax-free withdrawals in retirement, which can help you manage tax obligations later in life. The earlier you start saving, the more you benefit from the power of compound interest. Contributing to these retirement accounts ensures you have the financial resources to live comfortably after you stop working.
Financial Preparation Is Key to a Lifetime of Success
Living in Richmond has several advantages, including its relatively lower cost of living. Richmond residents can use this as an advantage to build substantial savings, prepare for significant expenses, and ensure that they retire comfortably.
Proper financial preparation is vital in smoothly navigating major life events and transitions. For Richmond residents, understanding the local economic landscape, setting clear goals, and choosing the right financial products are crucial steps in this process.
It also helps to have regular financial check-ins and adjust your financial plan annually as you move through life. Check your savings progress and ensure your investments align with your goals.
By preparing in advance, budgeting correctly, automating your savings, using tax-advantaged accounts, and reviewing your financial plan regularly, you’ll be well-positioned to achieve your financial goals and enjoy your significant life moments with confidence and peace of mind.
