October 7, 2024
Photo: soccer4460 via 123RF
While each person’s journey differs, many of us will share a few life events requiring significant investments. These milestones include major purchases, such as a first car or home. They also include investments in education, such as college or pursuing advanced degrees. Getting married, having children, and retiring are stages of life that bring financial changes. Discover what tools are available to prepare you for large expenses and specific life events.
When preparing for financial milestones, it is wise to have a few financial tools available, including:
- A good credit score.
- A savings account for specific large purchases or emergencies.
- Investment accounts.
Purchasing Your First Car
Often, your first considerable expense is a car. Whether it is a new or pre-owned car, you may need to borrow money to pay for the vehicle in full. Car loans allow you to make monthly payments for a pre-determined length of time, typically between 24 and 72 months. The larger your downpayment (how much you can pay upfront), the lower your monthly payments will be.
The annual percentage rate (APR), which includes interest and fees, will impact your monthly and overall total cost. Compare loans and rates from banks and dealerships to understand all the loan terms and how much the actual total cost of the car will be.
Paying for College
Rising tuition costs make college an increasingly expensive endeavor. Tuition, room and board, books, supplies, and travel expenses can quickly add up. 529 College Savings Plans allow you to save post-taxed dollars without paying earned income tax as long as the money is used for educational purposes.
Other options for yourself or your children include scholarships, grants, and loans. Federal student loans typically have lower interest rates, and repayment options are based on financial need. Private lenders and banks also offer student loans. Beyond paying for college, student checking accounts and credit cards allow young adults to start building credit and manage their money with low credit limits and other safety nets.
Getting Your First Job
With your first full-time job often comes additional responsibilities of paying rent and other bills. At the end of the month, there may not be a lot of money left over. However, saving and investing even a little bit every month can set you up for long-term financial success. Starting to invest at a young age allows for your money to compound or grow exponentially for longer. By adding the interest earned each year to your investments, your money has the potential to grow significantly.
If your job offers a 401(k) retirement plan or payment matches, take advantage of it! If you don’t have this option at your job, consider opening a traditional or Roth Individual Retirement Account (IRA). A high-yield savings account is an excellent place to start saving for large purchases and rainy-day funds.
Photo: plaping via 123RF
The Wedding and Beyond
Weddings are another considerable expense, with an average cost of $33,000 in 2024. While you can finance these costs with a credit card or even a wedding loan, the best option is to create a budget and accumulate the money in a savings account.
After the wedding, many couples merge finances and open joint checking and savings accounts. Kellogg School Eli Finkel reports that “researchers determined that a joint bank account can help couples align their financial goals and adhere to communal norms, rather than behave in a more transactional way.”
Buying a House
Somewhere along the way, you may decide to buy a home, which usually involves a mortgage. Applying for a mortgage will determine whether you can afford a home and for how much. Understanding the difference between fixed and adjustable rates, insurance requirements, and closing costs is essential. Later, once you have built up equity, you may qualify for a home equity loan (HELOC) for improvements or other expenses.
Having Children
Bringing children into the world may prompt you to explore life insurance options to protect your family from financial hardship if something happens to you. Term life insurance covers a chosen period, typically 10, 20, or 30 years. If you keep the policy active, whole life or permanent life insurance provides coverage until your death. These policies have higher premiums with a portion that builds cash value. With both types of plans, you will name beneficiaries to receive the money if you die.
Preparedness and smart decision-making can protect your financial well-being at each life stage. Building trusting relationships with your bank, financial advisors, and other institutions can create valuable resources. Their guidance can help you navigate the varying financial tools available for each milestone.
