We will all experience major life events that can account for a significant portion of our expenses and shape our financial picture.

With that in mind, planning is vital to allocating your capital effectively, including financially preparing for major life events. Without it, stress, derailed goals, and even debt accumulation can occur. 

Continue reading to learn more about how to plan financially for big life events and how to turn milestones into opportunities for growth and stability. 

Why Big Life Events Require a Financial Plan (Not Just a Budget)

Having a budget is one thing; having a financial plan is another. When it comes to achieving your goals, a budget alone will not be enough.

A budget without a comprehensive financial plan can be counterproductive, leading to inefficiencies in achieving your goals and maintaining your financial security. This is because big life events can create a ripple effect across your finances:  

Cash Flow: Funding a major life event, such as getting married or making a down payment on a home, requires a large upfront sum. A plan can forecast these changes, build buffers, and prevent surprises that could lead to cash shortages. 

Debts: Spending on big life events may also require borrowing or adding to existing debts. A financial plan helps prioritize debt repayment and explore refinancing options.  

Taxes: Life changes may also trigger a shift in tax status. For example, marriage changes your filing status, which can affect your effective tax rate…sometimes lowering it, sometimes increasing it…depending on both partners’ incomes. Planning for these instances helps prevent surprises and maximize opportunities that can save you money. 

Insurance: Life changes often necessitate reviewing and updating insurance policies, such as adding a spouse and children to health insurance. A plan identifies needs, compares policies, and builds premiums into your long-term projections, ensuring your loved ones are covered and your finances are protected from uncovered costs (such as medical bills).

Retirement savings: Contributions to retirement accounts, such as 401(k) s, can be affected by major life changes. Having children might pause contributions, while a career change may provide more contributions to retirement savings. In these cases, a comprehensive plan helps manage short-term disruptions and strategizes to ensure staying on track for long-term goals. 

Start Here: Your Big Life Event Financial Planning Checklist

1. Clarify the Event Timeline

Having a clear timeline (at least a window) for the event helps plan for the financial pressure it can create. 

For example, are you planning to get married in 6 months or a year? Is the baby due in the spring? Are you buying a new home in the summer? 

One can start adjusting, saving, and preparing for the cost once the timeline is set. The closer it gets, the less time you have to plan. 

Moreover, distinct one-time costs vs. ongoing costs. For example, weddings usually involve a single, high upfront cost, while purchasing a home often includes a hefty down payment, closing costs, and monthly mortgage payments, taxes, insurance, etc. 

Jot down your timeline and mark milestones backward from the event date to help you keep track and make necessary adjustments.

2. Identify Changes

Changes are normal. However, without a plan, these changes can catch people off guard. If goals and a timeline have been set, map out any financial shift. 

For example, getting a new job requires updates to your expenses. Whether it’s a new job with a higher salary or a lower one, run the numbers and factor in how these changes could affect your planning. 

Getting married can also mean merging two budgets, which can lead to costs being doubled or split. Talk it through with your partner and figure out how you would like to manage expenses.

Lastly, life changes such as having children will also bring new responsibilities. These new responsibilities require costs (such as childcare, education, insurance coverage, etc). Set your budget to allocate funds to the Immediate (next 3-6 months), Short-term (6-18 months), and Long-term (2+ years) categories. 

3. Build a “Life Event Fund.”

One of the smartest ways to plan financially for big life events is to build on your “Life Event Fund.” Create a savings account dedicated to funding these big events and contribute to it periodically. 

Opt for a savings account with no monthly fees and a solid APY. Automate transfers regularly, such as after you get paid, and limit access to your account. 

Maintaining strict use of the savings account and keeping it separate helps you track progress clearly and avoids the temptation to spend it on non-essential expenses.

How much should you contribute to your life event fund? Estimate the total costs to fund your goals by getting the realistic costs of events such as weddings, homes, and baby-related costs in the national average and in your specific state or city. Add around 10%-20% to this cost to account for surprises and inflation. 

Next, review the timeline you created and compare it with the total target you set. Remember to make it realistic and open to changes. If multiple events may overlap, prioritize your goals based on your most essential needs. 

Financial Planning for Marriage

“Marriage money talks” to have before the wedding

One of the most overlooked factors in planning for marriage is what is known as the “marriage money talks.” Couples often miss the opportunity and end up struggling to find common ground as they near the wedding day. 

Engage in honest money talks early to stay in sync with your partner, avoid confusion and conflict, and ensure your big life event together goes smoothly.  

Merge money the smart way

Every couple is different in how they manage their money once they are together. There are three approaches to combining funds: fully combined, fully separate, and hybrid. 

The fully combined put everything into joint accounts (checking, savings, investments). The benefit of this approach is transparency. However, it lacks personal freedom. 

In contrast, the fully separate approach entails allocating funds to separate accounts and sharing bills proportionally. 

The last option is a hybrid approach: a joint account for shared expenses while still keeping separate personal accounts. This approach provides teamwork while maintaining autonomy. 

Legal and planning items couples overlook

With marriage comes financial and legal changes. Couples often ignore this vital component of financial planning. 

First, make sure to add beneficiaries, such as your spouse, to retirement accounts and life insurance policies, such as 401(k)s, IRAs, and life insurance policies, because these accounts have provisions that pass outside of wills/probate, which means they can be inherited by family if left unchanged. 

Second, add each other as primary contacts and create a living will and a power of attorney for healthcare and finances to ensure one can make decisions if the other cannot. 

And lastly, update withholdings and tax filing strategy as your bracket shifts once married. Decide filing jointly (usually best) vs. separately. Adjust these changes early to avoid surprises. 

Planning Financially for a Baby (and the Years After)

Having a baby is a big life change that requires commitment and financial preparedness. These preparations may mean shifting your household income and insurance needs, and setting up for the long term. 

The initial planning is often the biggest upfront hit, including one-time baby gear purchases, ongoing supplies, childcare, and medical expenses. The first-year baby-related expenses will depend on where you live, but one study suggests first-year costs of around  $20,384. 

Prepare for income changes

Having a baby often means temporary income dips as one parent takes unpaid leave, reduces hours, switches to part-time work, or pauses work, which can impact long-term earnings and career trajectory. 

Get prepared by building an emergency fund covering 6-12 months of essentials, reviewing work policies on paid leave, sick or vacation use, and exploring tax credits. 

Start long-term saving early

Many estimate the cost of raising a child to age 18 at over $300,000, depending on housing, childcare, and location. If you are planning to start a family, saving earlier is better. The compounding effect will work in your favor. Build different savings accounts with high yields and tax advantages for emergencies, education, retirement, and other accounts, such as Custodial (UGMA/UTMA), for flexible future use. 

Buying a Home (or Moving to a New One)

Upfront home-buying costs to plan for

Buying a new home entails covering a variety of upfront expenses, including a down payment, closing costs, moving costs, and repairs and furnishings. These costs vary by where you live, but they can add up to 10%-25% of the purchase price. 

Ongoing ownership costs that people underestimate

Buying a new home or moving to a new one is not a one-time expense. Many people ignore or underestimate the ongoing costs of owning a property. This includes regular maintenance and repairs to ensure the house is in good condition, property taxes that owners must pay, and utility expenses, such as energy bills and internet. 

How to know what you can afford

So how do you figure out what you can afford? 

Determine your monthly payment comfort zone using the 28/36 rule as a guideline. For example, housing costs should not exceed 28% of your gross monthly income, and total debts should be kept below 36%. 

Calculate the number by using the debt-to-income (DTI) ratio. Lenders typically use this to determine what you can afford on a mortgage or how much of your monthly income goes toward debt payments. 

Front-end DTI: This looks only at housing costs (your future mortgage payment plus property taxes, insurance, and HOA fees, if any). A good target is 28% or less of your gross income. 

Back-end DTI: This includes all your debts (housing and everything else, such as credit cards or loans). Many aim for 36% or less. 

Use your monthly gross income and divide it by total debt payments. 

Choose Butson Financial Advisors, LLC

If you are looking to plan financially for big life events, choose Butson Financial Advisors, LLC. We are financial planning professionals and can help you explore options and opportunities that align with your goals and preferences, based on your financial situation. 

Contact us today and let’s start planning for the future! 

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All investing involves risk, including loss of principal. No strategy assures success or protects against loss.*