There are some inevitable big decisions that we all make in our lives that will have a major impact over the course of our lifetime. For example, what we choose to study in school has an important influence on the trajectory of our career goals and life choices that align with the decision, if we stick with it. So too the decision whether to have children will have an impact on how we plan our lives and the major considerations that will be important, for at least the first 18 years of the child’s life.
Being aware of these changes, therefore, means that we will must put certain things in place when making these and other major life decisions, to ensure that our personal finances align with our circumstances. We have compiled a list of important financial considerations that should be made when planning a major life change.
This could be as simple as purchasing a new car or as complex as getting married, starting a family and purchasing a new home. What is important in all these circumstances is that your financial wellness remains intact, regardless.
Assess your financial health and consolidate debt
Assessing your credit history should be step one. In taking out a loan or mortgage, your creditor will look at your credit report. This would cover all aspects of your finances – including your repayment history, outstanding balances and credit limits. In Jamaica, you can apply for this through one of three credit bureaus: Creditinfo Jamaica, CRIF Information Bureau Jamaica or Credit Information Services. Creditinfo offers an online application via their website, and CRIF and Credit Information Services offer online processing via email. You can expect to receive your credit report same-day or within 48 hours.
If you have any outstanding credit card debts, you should aim to pay off at least the minimum monthly amount, as this will affect your credit rating. One way to efficiently pay off debt is to set up automatic debits, which will periodically deduct a portion of your income. You could also consider re-financing or restructuring the payments terms of these debts to provide breathing room.
Create an emergency fund
Life happens and when you least expect it, there will be costs that you either never predicted or emergencies occur that were not adequately planned for. You can seek to address this by starting an emergency fund. This fund can have its basis in a traditional savings account, but the goals is to build a source of ready cash that can be accessed easily, in a time of need. Ideally, your emergency fund should cover at least two or three months of your monthly salary as this is considered the average amount of time needed to find new employment.
Secure adequate insurance
Every stage of life brings different hypothetical scenarios – whether it be critical illness, physical disability or even death. Therefore, you will need to consider implementing a plan for insurance, to protect yourself and loved ones, from any potential financial risks.
The earlier you take out life insurance, the lower your premiums will be and a varied health insurance policy should cover most major illnesses. Once you are married, you can also consider taking out a joint plan, which will save you significant amounts versus an individual plan. A joint life insurance plan covers first-to-die (lump sum goes to the surviving spouse) and second-to-die (death benefit paid out to other beneficiaries or heirs).
Explore estate planning
At any stage of our lives we will have some form of asset, and especially at the point of acquiring, it is important to make plans for those items if we suddenly die. Through the process of estate planning, considerations around what should happen to your personal property and who should benefit, will be made.
Based on your circumstances, making a last will and testament may be an important part of the plan of how your assets will be distributed among your beneficiaries. More information on making a will can be found here.