How to Budget for Major Life Changes

I've written before about how budgets evolve and are refined over time. Usually this is a slow process of gradual change. But sometimes your life and thus your budget takes a big Chuck Norris style kick to the head. In other words, you're having what's commonly called a major life change.

What might these be? Well, you might be getting married. Possibly divorced. Maybe you've got a new job that pays either substantially more or substantially less than you were making. Or maybe you are moving to a location with a significantly different cost of living. Maybe you're quitting your job or going part time. Or maybe your family is going to grow when you adopt a pet or decide to have children.

If you know a life change is on the way then you most certainly should not imitate the noble ostrich by sticking your financial head in the ground and pretending it just isn't there. You're going to have to be proactive, do some research and make some plans if you want to be ready.

As the old adage goes, knowledge is power. Thus the first thing you need is information. What kind of life change are you expecting? Is it going to provide you with more income? More expenses? Both? And just how big of a change in income or expenses are in store for you?

Let's say for example that you are having a kid, but you have no idea how much one costs. It's time to do some inquiring. Ask your friends who have kids and consult the internet (It does seem to have an answer for everything). Get some numbers to work with. How much are you going to have to spend and what are you going to have to spend it on?

Once you know what changes to expect as well as the magnitude of those changes you can begin imagining possible scenarios and making some new budgets. Having a new budget may entail significant changes in lifestyle as well. For example if you are switching to a part time job or expecting a new child you'll probably have to plan on cutting back on entertainment related expenses.

Be sure to keep a careful watch on your finances as you make the transition into the major life change. That way you can refine you budget and cut back on your expenses as necessary.

A second example worth consideration is moving into a much higher paying career. Some things to consider in this situation are increasing your savings and increasing those IRA and 401(k) retirement contributions. If you are a recent graduate than a new career might also entail new expenses such as investing in a professional wardrobe or higher rent as you move out of your roach motel apartment and into something new.