Counting receipts and doing monotonous arithmetic isn't the average person's idea of a good time. But even the simple act of compiling your month's bills and taking 10 minutes to map out your expenses can work wonders in the world of personal finance. Unfortunately, not everyone covers the basics.
We're all aware that emergencies, huge debt and unplanned events can take a big bite out of your income and savings, but what about the good things that happen in life? Getting married, that graduate degree, your first home and so on. These memories are great to look forward to and look back on, but they may also come with some unexpected changes to your standard of living.
In essence, sometimes good things go bad, even through no fault of your own.
Let's look at a few ways this could happen to you, and how you can plan to avoid financial fallout from life's big moments.
Obtaining another degree: Great for learning, but will it pay off?
Though holders of master's degrees can expect to earn an average of $400,000 more over the course of their lives than those with only bachelor's, this money is by no means a guarantee. On the other hand, what is a guarantee is the upfront investment of continuing education at the graduate or postgraduate level: The annual tuition at most public universities will run you, on average, about $30,000, according to Peterson's, a provider of test prep services; for private schools, that figure is closer to $40,000 - and that's just for a single year. Multiyear programs will then require close to six figures in some instances.
Don't let this deter you from pursuing your dreams, but it's best to explore all your financial and educational opportunities before making such an impactful decision. Qualifying for federal student aid and applying for eligible scholarships can significantly offset, and in some cases, fully fund, college tuition. Those who have trouble financing college can incur decades of high-interest loan debt, which is why obtaining another degree can be a financially risky proposition at face value.
Saying 'I do': Congrats, but know what you're getting into
Online wedding planning site The Knot notes that today's weddings costs more than $31,000. Yowza! And that's just for the ceremony and reception. Think about the honeymoon, fluctuating insurance and tax obligations and the potential of having to legally assume another person's debt/credit history.
Sure, it's the best day of your life, but getting married comes with serious financial consequences, that can unknowingly set you back tens of thousands of dollars right off the bat. Ensure you and your spouse have a game plan on how to approach the big day while laying the groundwork for navigating your joint finances in the future.
Picking up the keys to your first home: Picture perfect, or is it?
Additionally, interest rates are rising, making home loans more expensive.
This market dynamic places a premium on scoring the best deal possible, which requires a significant amount of personal research and professional assistance, something that not every prospective homebuyer is up to.
Location, proximity to schools and emergency services, weather-related risks, previous owner history and a host of other factors can all impact the cost of a home, so examine all your options and look at every detail of the homes you may be interested in.
Advancing your career with a higher-paying job: Smart move or near-sighted?
If you're stuck in a rut professionally or are simply no longer loving your job, it's natural to look for better opportunities. Marginal increases in salary can be good; large pay bumps even better. Well, not all of the time.
Beyond a paycheck, work is a community of people whom you interact with, which can be its own source of satisfaction. Different employment structures can allow you to work remotely, arrive to work on a flexible schedule, provide tuition reimbursement, offer great insurance benefits, match 401(k) contributions, etc. These components don't necessarily always come across in a salary.
So, even if you find a job that pays you $15,000 more, if it takes longer to commute, it's more expensive to park and the perks aren't as good, did you really win out? Perhaps not, all things considered.
Choosing the best schooling for your kids: Best route or most-expensive route?
You're already paying taxes that help fund public schooling, so sending your children to the nearest public school is akin to getting your money's worth. But, depending on location, quality of teachers and social factors, private schools could be better options for your kids, educationally speaking.
But that's only feasible if you're willing to fork over tens of thousands of dollars each year in private school tuition - and that's just for one kid.
Further, private may equal prestigious, but it doesn't always equal better. And if you have a growing family, schooling can be a huge expense that most families cannot afford.
Upgrading to a roomier vehicle: Safety first or preference first?
As we mentioned, the larger your family grows, the more expensive it becomes to manage. As is the case with many American households, you'll likely need several vehicles, one of which that's spacey enough to fit all your children, their car seats and all the requisite luggage that goes along with small kids.
Upgrading to a new model can be a good option if you have the financing available to do so. But the cost of a new SUV could be more than $40,000 and for even larger vans, perhaps more.
On the other hand, purchasing a slightly used model while trading in your existing vehicle can reduce your price point substantially, meaning you get the vehicle you need but without having to hand over an arm and leg.
Investing savings: Building a nest egg or cracking it open?
Too often, workers are unclear on how to stash away their hard-earned cash. And so they don't do anything.
On the other hand, some workers just blindly accept their employers' 401(k) plans and all its fees. While gaining an employer match is a great option, if it's not higher percentage (5 percent or more, for example), then fees could be eating away at what you're actually winning.
Still, another category of workers place their investments into risky savings vehicles and expect near-term results.
Wherever you fall on this spectrum, it's important to work with a financial advisor and to automate a portion of your savings. Otherwise, the nest egg you were hoping to build over a 40-year career could end up being a lot smaller than you'd expected, meaning you may have to go back to work or claim Social Security payments earlier.
For more information on how to stay financially secure throughout life's biggest moments, contact Farmers & Merchants State Bank today.