Six Major Life Events That Can Cause Financial Difficulty

Many life-changing events are unpredictable. Coping with them is taxing enough without adding steep financial challenges into the mix. Though you may not know when they will come, you can prepare for unplanned and unexpected expenses and save your financial house from crumbling into disorder.

Consider the following six scenarios that could potentially cause financial issues — along with actionable steps you can begin taking today to prevent and weather any potential financial blowback.

Life Event: Death of a Spouse

The loss of a spouse is emotionally devastating at any age or stage of life. The grief process is all consuming and often eclipses daily tasks and financial responsibilities. Delays in probating the deceased’s estate due to limited planning can easily push a financially stressed household to the brink. You may see a significant reduction in income and household bills or joint debts that were previously manageable can become burdensome — even after a life insurance payout.

How to Prepare

Make solid estate planning a priority. This includes a will, a power of attorney and other legal documents to instruct the family of financial and health matters. Consider purchasing funeral insurance to cover the financial costs of the service and burial, as well as life insurance to offset any long-term shortfalls in household income or to cover outstanding debts.   

Life Event: Separation or Divorce

Relationship break-ups can have significant impacts on both party’s finances. Joint debts and family assets often become a major sticking point. One spouse may pay spousal and / or child support, while keeping up with family debts. The other spouse may face the challenge of singlehandedly running a household while seeking adequate employment. In either household, the costs of setting up the new home, supplementing the loss of income and / or paying for legal bills due to the separation and divorce proceedings often results in added debt.

How to Prepare

Live within your financial means as a couple and attempt to divide assets and debts amiably in a breakup. This will go a long way to relieve financial pressures during this difficult period. Nothing can prepare you for a relationship breakdown. However, honest communication and keeping your commitment to each other strong, in good times and bad, can prevent animosity and ill will if and when it happens.  

Life Event: Sudden Illness

A debilitating illness or life-threatening accident are the most unexpected life events. Reduced income — whether due to loss of an income or temporary disability benefits (if available) — may not be enough to cover household expenses. Especially if there are financing payments and debt payments included in the monthly obligations.

How to Prepare

Evaluate your insurance coverage for instances where employment income becomes temporarily or permanently limited. Also, scenario plan now to determine how you could reduce living expenses during a long-term illness or unpredictable recovery time. This might include finding less expensive housing, eliminating unnecessary spending and selling assets like a car or recreational vehicle to create or free up cash flow.

Life Event: Loss of Employment

A sudden loss of employment due to strikes and cutbacks can be overwhelming both emotionally and financially. Severance packages only go so far; unemployment insurance may not cover outgoing monthly expenses; and you may not have a financial safety net to bridge the gap between the end of a job and the beginning of a new one.

How to Prepare

Create an emergency fund to cover living costs should you lose your job. Even setting aside one month of living expenses will go a long way in helping you get from one job to the next. Also, keep your debt obligations at fifteen percent or less of your net income. Even if you have a short interruption in your income flow, this will likely enable you to keep meeting your monthly payments.  

Life Event: Getting Married

Marriage is the union of two unique individuals with two separate financial histories. This can cause disagreements. Is one half a spender and the other a saver? Is one person bringing a load of debt into the relationship? Is there clear communication about money management? Money is one of the top reasons for discord in relationships and can often lead to seemingly irreconcilable differences.

How to Prepare

Discuss finances with your future spouse, plain and simple. Getting on the same page financially could literally save your relationship. Disclose debts, compare money management styles and create financial goals together.

Life Event: Having Children

It’s estimated the cost of raising a child to the age of 18 in Canada could be approximately $250,000. That works out to just under $14,000 a year. Add in the costs of daycare, education savings, sports activities and that number may balloon much higher.

Most parents don’t get a $14,000 bump in salary when they have a baby. In fact, with maternity and paternity leave, many families will earn far less than the equivalent full-time income they were used to in the first year after a child is born.

How to Prepare

Estimate what your income will be when you and / or your spouse take maternity or paternity leave. Adjust your budget before baby arrives to account for the reduced income and increased expenses of having a baby. Living with this realistic budget can show you where to make further changes.

Life Happens and So Does Debt

It’s often said an ounce of prevention is worth a pound of cure. But that may be cold comfort to households already struggling with unexpected expenses and overwhelmed with unmanageable debt. If you’re having trouble making ends meet and can’t see a clear path forward, know you’re not alone and you do have options.

During a Free Confidential Consultation, an MNP Licensed Insolvency Trustee will review your financial situation and goals and outline options for you to get the financial fresh start you need and deserve. You may qualify for a Life-Changing Debt Solution such as Bankruptcy or a Consumer Proposal — or benefit several other opportunities to defeat your debt, improve your financial literacy and find a better path forward.

No matter what direction you choose to go, a Licensed Insolvency Trustee will make sure you’re aware of every possibility and able to make the best, most informed choice for your unique situation. Contact us today to take that first step toward financial freedom and peace of mind.