Education

How To Assess Your Finances And Investments At Different Life Stages

Life is full of big moments that lead to new and exciting chapters. Each new stage is an opportunity to reassess you and your family’s needs and wants. This almost always includes a look at your finances and investments, which are so heavily influenced by your short- and long-term goals.

Why Are Life Events a Good Time to Revisit Your Finances and Investments?


Your finances and life events, like getting married or having kids, absolutely go hand in hand. Frankly, it is difficult to think of a major life event that doesn’t affect your finances and investments in some way.

At Avidus, when it comes to your financial goals, we like to say, “Know your why.” Don’t accumulate wealth for the sake of it. Save and invest to fund what you hope to accomplish throughout your life, which so often changes from one life stage to another.

What Are Important Investment Considerations and Strategies to Evaluate Ahead of a Major Life Event?

As you approach a major life event, there are a handful of considerations to take that’ll help ensure you’re on the best financial footing possible.

Build up your savings now to pay for new expenses later.

Some life events you can see coming, others are a total surprise. When they come with new expenses, it’s important that you have the best options for how you’ll pay for them, which generally is a savings account. If you don’t have an adequately funded savings account, how will you cover sudden expenses? Dip into your 401k or home equity? These options can add to your tax or debt burden, so be sure to think through all your options before you do anything you may regret.


If the life event is a loss of income, consider pausing investments.

If you’re suddenly without income, you may want to consider pausing your investments, especially if you need cash to cover ongoing expenses. Taking a short break from investing (e.g., several months to a year) won’t seriously jeopardize your long-term earning potential – unlike taking on high-interest debt.
Resist the temptation to immediately increase your lifestyle.

On the flip side, when your income increases, it can be tempting to “level up” various parts of your life – whether that be your wardrobe, car, home, or travel. There’s nothing wrong with celebrating a significant achievement, but before you commit to any big changes that will have a long-term impact on your finances, take a deep breath and pause. It can be a friend, family member, or financial advisor, but talk through your options with someone before you lock yourself into a major financial commitment.


Are There Recommended Investment Considerations/Strategies Unique to the Following Life Events?

There are certain considerations to think through at specific life stages. Here are some of the common ones we see and recommend:

Getting your first job
As soon as possible, get any retirement plan offerings like a 401k setup. If your employer offers a match, be sure to contribute as much as necessary to get the full match. This is free money and not taking advantage of it decreases your overall salary.

Getting a raise
We recommend taking part of your raise and increasing your 401k contribution. For example, if you get a 5% raise, add at least 1-2% to your 401k contributions. If you can afford to, consider putting all of your raise toward your 401k.

Getting a new job
When you take a new job with a new organization, you’ll need to decide what to do with your old 401k. Generally, you have four options:

o Option 1: Cash it out (Don’t do it!)
o Option 2: Leave it as is
o Option 3: Roll it to the new company’s plan
o Option 4: Take it and transfer it to an IRA

Of these four options, the first is the worst. You’ll have to pay taxes on it, and if you’re under 59.5 years old, you’ll face a 10% penalty. The others still leave you the opportunity for that money to grow over time.

Getting married
What’s one of the biggest sources of conflict between couples? Finances. Some couples prefer to join their finances, others opt to keep things separate. Generally, there’s no right answer – so long as each person is on the same page and agrees with the plan.

That said, if the couple is younger with simpler finances, it is easier to join accounts and assets. However, if the couple is older with more complicated wealth positions, keeping them separate may make sense. Also, if there’s a lot of disparity between the couple’s respective debt and income, it may be worth considering a prenup.

Buying a home
If you’re looking at buying a home in the next one to three years, don’t invest money you plan to use as a down payment. Instead, put your money in something like a high-yield savings account or CD. You won’t see huge gains, but it is immensely safer than the stock market which could take a sudden negative turn.

Having children
Aside from the added expenses that come with having kids, the big question to ask yourself at this life stage is if you want to help pay for their college education, and if so, how much. If you do, set up a 529 savings account. These state-sponsored tax-advantaged savings accounts are a great safe way to save for a child’s college fund. Each state offers different tax advantages. For example, Virginia residents can deduct contributions up to $4,000 for each account they own.

Retiring from your career
If you’re nearing retirement age, consider consolidating your investment accounts – ideally to one to three main accounts. Also, look at your overall investment strategy. Generally, this isn’t a time to have 100% of your money in stocks. Instead, more of your wealth should be made up of cash and low-risk investments like bonds.

Receiving an inheritance
If you find yourself the recipient of a significant inheritance, find a professional financial advisor who can help you determine how best to fold it into your current finances and how it augments your existing goals. When deciding between advisors, it’s often best to choose one that is solely fee-based and has no incentive to sell you something.

How Can You Retroactively Apply These Recommendations to a Particular Life Stage?

If you’ve already gone through or started one of these life events and not followed these tips, don’t fret. It’s never too late. There’s a reason financial advisors love the Chinese proverb, “The best time to plant a tree was 20 years ago. The second-best time is now.” It’s never a bad time to start making smart choices to fund your financial goals.

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Especially if you’re new to investing or feeling behind, don’t be afraid to seek professional help. When people feel overwhelmed, it’s easier to put off investing – or worse, make particularly bad financial decisions.