Dealing With Life's Transitional Moments
Some life transitions, such as a career change or marriage, are planned, but a job loss or divorce can be sudden and unexpected. One common thread that accompanies all transitions, however, is the concern about whether there will be enough money to maintain your lifestyle. The timing involved with the unpredictability of certain life events is often the main cause of anxiety over personal finances.
One way of dealing with this problem is to determine your financial staying power at the outset. This exercise allows you to project how far your financial resources will carry you. Knowing how much time you have before additional resources will be needed can free you of stress and anxiety and allow you to concentrate on accomplishing your goal in transition.
The process begins by examining how much it costs to maintain your current lifestyle. To do this, you need to review your check book or online account and credit card receipts to find out where your money has been going. Don’t forget to include those cash expenditures and frequent ATM stops that you make on a daily or weekly basis.
Once you have an idea of your average monthly expenses, you can compare them to the financial resources you have committed to the transition. This may include cash on hand; any reliable cash inflows, such as a spouse’s salary; investment or rental income; alimony or child support; a severance package or unemployment compensation, if applicable; and any investment assets you can liquidate in the event of a shortfall.
After recording your current expenses, you are ready to project a modified spending plan. You can curb your current spending by identifying areas where you can cut out unnecessary items without seriously compromising your lifestyle. These modifications may include seeking out less expensive alternatives for some of your current habits.
Now that you have modified your spending plan, it’s time to create a “bare bones” budget. This will further reduce your cash outflow to pay for only necessary expenses, such as housing, food, transportation, etc.
At this point in the process, you have the information you need to decide how you will allocate your resources. You may choose to customize your plan, allowing you to continue funding your current lifestyle for a number of months, switch to a modified spending plan if you need more time, and implement your bare bones budget if an unexpected obstacle prevents you from your transition objective within the planned time frame.
Although life changes can be challenging, you can minimize the financial pressures by planning how you will allocate your resources during the time of transition. By determining how much it will cost you to get from point A to point B, you can tweak your plan to make it financially feasible.
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