Facing transitions in life is stressful, especially when it involves relocation. These adjustments involve a lot of changes and may have you worried about your future security. However, if you plan carefully, you can reduce the challenges.
The key to reducing stress is building a financial safety net beforehand. These tips will help you set up what you need to give you peace of mind for any transition.
Building an Emergency Fund
Your first step is to build your emergency fund to set aside money for when emergencies arise. Unexpected events upend your life, like a home disaster or family crisis. Even less traumatic problems, like a broken water heater, can be a calamity if you don’t have the funds to fix it.
Review past expenses and how many people you care for to determine how big a fund you'll need. Consider emergency expenses not covered by life or health insurance. Once you determine that, select a percentage of your income to set aside. Take advantage of any savings options your employer offers.
Keep the fund in a secure but accessible place such as a checking account or prepaid card. Fund this account regularly as part of your budget.
Creating a Budget for All Your Needs
That leads us to our next tip: creating a budget so that you can save up for your future. A budget provides discipline and accountability, but it can also help you save up for your goals. For example, you can budget for your first apartment or home, which is crucial if you relocate to a more costly neighborhood.
To start, track where you spend all your money over a week or a month on a spreadsheet. This helps you view overall expenses and fluctuating prices.
Next, think about where you can cut costs. For example, can you use coupons or find better grocery prices? Are you subscribed to several streaming services? Does your bank charge extraneous fees? Find a cost-effective bank and reduce utility fees by switching to a new company.
Review your bank and credit card statements. Be sure to store important financial documents, like loan documents and contract agreements, in a safe place you can easily access. Organize them to make updates easy, and consider having backups in a separate location.
When relocating, you may need to store your items for a time. Learn what storage options are best and available in your new location, including full-service storage or self-storage. While the former is not always available and is more costly, it can go a long way to ease the stress of moving. Full-service storage companies pick up and move your goods, and that might make it worth the cost. Either way, remember to factor storage fees into your budget.
Once complete, write up your monthly budget. Include recurring bills, emergency funds, savings or investment contributions, and, if you like, tax-free donations so you can support the causes you care about.
Maintaining Good Financial Health with Credit Cards
Major life transitions like relocation often require credit cards. Being in debt is stressful, however, it can help you build your credit score if you do it wisely.
Conventional wisdom suggests paying off your credit cards right away. However, you may wonder if it’s bad to have a credit card with zero balance. Paying your cards off promptly has a positive impact on your credit score.
But before applying for a card, be mindful of your credit utilization ratio. This is the ratio of how much debt you owe on a credit card relative to how much credit it offers. For example, if you have $1,500 in overall credit and owe $500 across all your credit cards, your credit utilization ratio is 30% (1500/500). Aim for a ratio lower than 30% whenever possible.
However, there are other caveats. Every time you apply for a credit card, you get a hard inquiry reported to your credit score. Too many of those have a negative impact.
If you have a credit card you don't use, you can become a victim of fraud or theft without realizing it. Some companies will shut down an inactive card. Using credit cards wisely and infrequently improves your credit score.
Investing for a Secure Future
Finally, leave a portion of your budget for simple investments that ease your stress about the future. These include retirement plans, health savings accounts, and life insurance.
Retirement plans are not all equal. Employers generally provide, and sometimes contribute to a 401(k) retirement fund. (Public school teachers and tax-exempt employees are offered a 401(b), retirement plan without employer contribution.) If you are self-employed, you can choose an IRA or a SEP-IRA plan for high-income earners. All these plans provide tax benefits to help you save for retirement.
Health savings accounts (HSAs) are another money-saving option that allows you to set aside money for healthcare expenses tax-free. Other options include a flex spending account, which works with your employer's health insurance plans, or a health savings reimbursement account, which is set up through your employer.
Finally, everyone needs life insurance. These funds ease the burden of funeral and post-mortem expenses on your family. They can also provide for other emergencies, such as a terminal illness. Plans vary by offerings and costs, so you may want an agent's help to discover what plans work best for your budget, age, and circumstances.
Taking these steps helps you to create a financial safety net for times of transition. This ensures you can face anything life throws at you with a sense of security, even if you are relocating. The effort is worth the sense of security and peace that it provides.