The Value of Financial Planning During Major Life Events

As the world begins to recover from the ravages of the COVID-19 pandemic, many consumers are left struggling financially in its wake. This ongoing economic uncertainty has prompted many to consider the value of financial planning and the need for emergency funds.

Major events like the COVID-19 pandemic highlight the importance of informed financial planning and investing. Big events outside of our control can serve as a reminder to plan for a more financially stable future. Likewise, key life events can also awaken a need for financial planning. A 2019 Ernst & Young study of 1,500 consumers showed that Americans are especially interested in working with a financial planner during major life events such as getting married (79%), buying a home (66%), or sending a child to college (62%).

Both positive and negative life events can compel a reassessment of a family’s financial plans. The best times, such as a marriage or new baby, or worst cases, such as an accident or a death, can throw even the best laid financial plans into a tailspin. So, an important question to ask ourselves is what can we do differently with the benefit of hindsight as we look back on a major economic event such as the pandemic?

Unforeseen Circumstances
As helpful as traditional financial rules of thumb may be, they are no substitute for detailed financial planning. For example, a traditional rule of thumb is to keep an emergency fund with three to six months of living expenses. However, with the benefit of hindsight after the pandemic, it’s clear that many Americans could benefit from a larger emergency fund, depending on age and occupation. For example, the more volatile your income is, the less adaptable your job is to a work-at-home arrangement, or the closer you are to retirement, the larger the emergency fund you may need.

The pandemic also underscores the need for an estate plan and risk management. A sudden illness or death in the family can quickly derail financial plans and saddle the family with large, unanticipated expenses. Working with a Certified Financial Planner™ professional and an attorney can help to ease the burden when worst-case scenarios occur. Moreover, risk avoidance management also serves as a critical part of a comprehensive financial plan. Life can be unpredictable, and those without life insurance may consider buying coverage. Those who already have life insurance may be looking for other ways to manage risk with umbrella policies and disability insurance.

Major Life Events

Babies and Marriage
Major life-changing events, such as a new baby or marriage, accentuate the importance of updating a financial plan. As families get bigger, expenses increase and the stakes get larger. In the case of a new marriage, spouses will often combine finances, changing financial plans. It’s important to recognize that financial plans become multi-factorial since spouses’ goals and risk tolerances may differ. Comprehensive financial planning allows couples to have frank conversations about their long-term financial goals in a productive way. These conversations come out of necessity to plan for combined futures.

Dream Job
Landing a dream job or a major promotion can mean a jump in salary but may also mean added financial complexity. For example, young graduates who recently joined the workforce stand to benefit from financial planning to help them to strike the right balance between different savings vehicles and paying down educational debt. Tax optimization typically increases in importance at this stage, with the need for direct coordination between a CFP® professional and a CPA to implement tax mitigation strategies.

Retirement
Retirement should be a walk in the park, but planning for retirement rarely is. When faced with saving for retirement versus saving for a child’s college fund, parents will often over-prioritize saving for their children over themselves. However, a well-balanced financial plan will typically emphasize retirement savings over college funds. The reason is that loans are available for educational expenses but not for retirement.

Virtually everyone can benefit from financial planning services. In particular, the need for financial planning becomes critical during significant life transitions or when your finances change for the better or for the worse. A CFP® professional can provide the expertise necessary to synchronize different parts of your financial life as major life events change the best way to achieve your goals.

Research proves that consumers who work with a CFP® professional feel more confident, optimistic, secure and at ease in their financial wellbeing. The peace of mind that comes from having a CFP® professional help prepare a financial plan is powerful – and no two plans look the same.