By Jean Chatzky, financial editor of NBC TODAY and AARP Financial Ambassador, is host of the AARP Closing the Savings Gap™ podcast and the weekly podcast HerMoney with Jean Chatzky. See Jean in person at #FinCon19 Friday morning, September 6th at AARP’s Sponsor Booth (#420).
Research from the Stanford University Center on Longevity has shown women go through four stressful life events every year on average. Four! Some of these (a marriage, new job, baby or grandchild) are positive events, others (a divorce, corporate reorganization, adult kids moving back home) not so much. But what they share in common are two things: They’re all times of transition. And they all have a pretty hefty financial component. So how do you deal?
- Beef up your emergency stash. About half of all Americans don’t have even $400 to get through an emergency. Many more don’t have a full-fledged emergency cushion, defined as 3 to 6 months worth of fixed expenses in a liquid account. If you have advance warning that a transition is coming, stashing some added dollars into your cash cushion is a wise move. It means you won’t have to fret that the rent or mortgage, car payment or health care bills will have to slide if you find yourself between paychecks.
- Live like it happens, before it happens. There are some transitions that will result in a reduction in your take-home pay over an extended stretch. Perhaps you’re needed at home to care for an older parent. Perhaps you are stepping out of a long-term career to launch a new business of your own. If you have advanced warning that this is coming, adjust your monthly spending by pretending that you’re living on less for at least several months (or pay cycles) before it actually happens. This has two positive benefits. It shows you that it’s possible (or at least lets you figure out how to make it possible), and it allows you to stash away the excess in the time period before your income actually dips.
- Talk through the changes. Transitions are hard. Financial transitions are harder. It helps to have an open dialogue to make sure that you and your spouse or partner if you have one are on the same page about what’s an important use of your financial resources and what can slide. Sit down together and go through the numbers in detail. Then schedule time to do it at least once a week as these transitions take place. And if you’re going it alone? It still helps to have a sounding board. A financial advisor can fill this role, or even a financially savvy friend.
