How I Test Drove Motherhood...Financially
By Jennifer Davis, CFP®
Becoming a parent, starting a new business, and entering retirement are all very different kinds of life changes, but they have one thing in common. They all have a major impact on your cashflow, or your monthly income and expenses.
When I was pregnant with my son, I knew that my life was about to change forever. However, as a Certified Financial PlannerTM professional, I also knew I could prepare for one aspect of my new life. I could take the budget for our new family on a test drive.
How I took motherhood on a test drive
As a mom-to-be, I researched the cost of daycare and other costs associated with a newborn. For 9 months, my husband and I saved that amount each month, acting as if we were already paying that amount to get used to our new budget. Of course, the budget was just one aspect of our new lives! But understanding the financial picture helped to make the transition a little easier because it wasn’t another sudden change on top of caring for our newborn around the clock.
This same concept can apply to many of life’s big changes—and reduce stress in the process. Here are a few examples.
Transition to being a business owner
Before quitting your day job (and forgoing the predictable income of a 9-to-5), try easing into the transition. Can you scale back hours at your existing job, while working on your new venture’s profitability? If you need to take a temporary pay cut, can you survive on that income? Rather than stressing your budget out of necessity, test it out when you don’t actually need the money. And make sure you have a healthy amount of cash reserves for the lean times.
"Try before you buy" into a new hobby
Perhaps you are considering joining a country club. Before taking on that expense, make sure you will use the benefits of the club. Do you have the time to enjoy golf on a regular basis? Play at few courses, or ask if a friend can take you as a guest. Try out your new lifestyle and make sure it fits in your budget of both time and money.
Moving to a new state in retirement
There are some states that are popular retirement destinations because they do not tax Social Security. However, there may be other cost-of-living changes that can be hard to anticipate, such as a higher sales tax or income tax. Before buying a home in a new state, we often recommend renting for a while, or even just visiting the area for a week or two. Get a sense of what your everyday life will look like and cost.
Scaling back work
Perhaps you are not ready to retire fully from work, but you want to have more flexibility in your work/life balance. Try living on the income you would have with fewer hours, and figure out what lifestyle adjustments may be needed prior to actually making the change.
Launching adult kids
Are you the parent of a young adult in college, or about to enter the workforce? Many young adult children decide to live with their parents to save money…but my experience with this is that sometimes living with mom and dad allows for a more lavish lifestyle than one could afford on one’s own. If you or your child really wants to live independently, research the cost of living. Help your child work on setting aside that amount (plus groceries, bills, etc.) before it is needed. Not only does this exercise give a realistic view of whether your child can afford to move out, but it gives the confidence to do so – and builds emergency reserves in the meantime!
You can’t always predict the path life will take you. Now that my son has reached his first birthday, I never could have guessed how many things we were able to juggle on a just a few hours’ sleep, week after week! However, there are some things we can, and should plan for. Think a few steps ahead, and you can feel confident rather than stressed about the financial aspects of changes in your life.