At some point in our lives we will experience major events that will affect our finances. I'm not talking about a flat tire or insurance deductible because of an accident. I'm talking about the ones that can really knock us off our financial plan.
So what is considered a major life event?
If you're like our Roots of Personal Finance members, you may be working on your first emergency fund, or you may be crushing your debt (I LOVE THAT!). But what do you do when one of these life events occurs or you can see it approaching on the horizon?
What I've found in my personal life and by helping others with their finances, is that we sometimes make decisions that will make these situations much worse. Major life events, especially the ones that aren’t of the pleasant kind, are usually filled with a lot of emotion. You'll experience many feelings and it's during these times when you shouldn’t make any major decisions involving money as they can have an affect on your life for many years to come.
So what should you do when these events hit or are soon to be at your doorstep? I suggest putting a hold on your financial goals and put all of your extra money into a savings account. The common denominator of major life events is that they all cost money. And while it's sometimes hard to predict how much they'll actually cost, I believe there's nothing better for you than a lump sum of cash that you can depend on when you find yourself in the thick of them.
Just so there's no confusion, I'm not telling you to stop paying your bills. I want you to make the bare minimum payment on all your bills, including your debt obligations so your accounts stay current. Any extra cash goes to your savings.
"How long do I need to do this?” Each event and each person's financial situation is different. Any of these events could be anywhere from 90 days to a year or longer. Evaluate your situation and make a plan, or reach out to us if you need help.
You may be privy to some of these events before they occur, which allows you more time to prepare. The next best piece of advice I can give you is to build a three- to six-month emergency savings fund. Building a large emergency savings fund will allow you to take the financial hit that some of these events can bring without sending you to the poor house. You'll be able to get back on track with your financial goals that much faster.
We tell our Roots members that it's only a matter of time before one of these events is knocking at their door, so preparation is imperative. It's amazing to see their stress melt away during these events because they're prepared. You can do this, too!