Why is financial planning important when your income stops or changes?
Financial stability plays a significant role in creating a strong foundation for your future. And you can have that stability only by having a steady income. With a steady income, you can buy real estate, consider an investment portfolio, and opt for a retirement plan.
However, there might be times when your income changes or comes to a standstill because you don’t have a current job or are still finding one with a salary equal to your previous one. Financial planning for employment events through professional financial advisors will help you keep your finances in check and avoid any adverse effects on your retirement or savings plans.
While it may seem like the furthest thing from your mind when you don’t have an income to provide for yourself, establishing a solid plan now can make all the difference later on. Here are some reasons why planning ahead is so important.
Evaluating your financial plan when you lose a job
While planning for a job loss, it is vital to review your financial plan and make sure it still works for you. Change some of the assumptions in your plan or even revisit some of your goals. For example, if you were planning on retiring at 65 but now have no idea when or if that will happen, then maybe it makes sense, for now, to focus on paying off debt and saving up an emergency fund until something else opens up in the next few years.
Financial planning without a present income
It’s important to note that even if you don’t have an income presently, it doesn’t mean that financial planning isn’t for you. In fact, planning for income loss is essential to prepare for your future so that when the time comes and an income does become available again, all of your bases are covered. During this time, your focus should be on meeting the bare necessities.
Effect on your retirement plan when you change jobs
You may need to adjust your retirement plan while planning for a job change. If you’ve just changed jobs, it’s crucial that you review the details of your retirement account and make sure that it still reflects how you would like to use the money once it becomes available. In addition, if there are any changes concerning tax considerations or investment options available through the plan administrator, you should also review these.
Planning for self-employed people
If you’re self-employed, it’s important to have a financial plan in place. You are responsible for your income and expenses, which means that if something causes your business to suffer (such as not being able to work due to illness), then all of the bills still need to be paid, and there may be no income coming in at all.
Moreover, since you’re self-employed, your income fluctuates regularly, making financial planning for fluctuating incomecrucial. By doing so, you can manage your short and long-term financial goals. For example, you might require a higher savings amount to help you out when you’re looking for your next assignment or project.
In addition, having an emergency fund is crucial because there will always be unexpected costs, such as car repairs or medical bills, which come out of nowhere but can still cost thousands of pounds if you don’t prepare for them beforehand.
How should you plan for a raise?
While financially planning for a promotion or raise, consider investing the extra money into a savings scheme, for example, increasing the amount to your monthly retirement plan. You could choose an investment plan or boost your emergency funds for financial emergencies in the future.
Getting professional financial planning advice
Getting professional financial planning advice is not just about the numbers; it’s also about helping you make decisions and ensuring that you’re prepared for the future. Financial planning helps avoid surprises by giving you a clear idea of where your money is going and how much there will be in the future.
It can help protect from unexpected costs such as medical bills or car repairs, which are often expensive and difficult to manage without any savings. A good financial planner will consider all aspects of your situation, including your financial situation, risk tolerance, and long-term goals.
You should consider financial planning for employment events such as a job loss or finding a job at your previous salary. It will enable you to monitor your overall finances and ensure that your retirement and savings plans remain unaffected by your employment situation. Seeking advice from a financial planner is your best bet under these circumstances.