How to plan for big events in your life

Rania Oteify

We all know that not all major purchases or significant expenses are voluntary or impulsive. Some are related to life events — like a wedding, childbirth or even death — and those are non-negotiable for their importance to us or our family.

Your financial situation should be a guide in terms of how big or small you will go in funding these events. Yes, you may have a minimum in mind that is acceptable or desirable. But to be sure that you hit at least this minimum, you must think carefully about the foreseeable life events and plan early when possible. The other side is to avoid obsessing about making those life events as perfect as possible at the expense of your overall financial well-being.

With planning, you will be able to perceive the costs and find the best route to come up with the needed cash at the lowest cost.

Here are some steps to take to plan for major life events:

■ Budget and save

Cash is often the cheapest way to pay for a major life event, if you have it. If you are planning for a wedding, a major trip or childbirth, try to budget and save to have as much as possible covered in cash. But keep in mind, although cash is a good way to go, don’t dip into your emergency funds to cover a life event that could be financed otherwise — unless you have absolutely no other option.

It is helpful to be realistic about the costs, and begin to save as early as possible.

■ Know your options

When cash and savings are not an option, your financing options could be either to pay by credit card or take out a personal loan. Each option has its pros and cons. Credit cards have a much higher interest rate but could be useful, if the expenses don’t require a lumpsum. You will be able to spread the payment over a period of time as they come. If the remaining amount is small and you can pay it over a couple of months, you are likely to keep the amount of interest paid in check despite the higher rate.

Personal loans are better when you know you will need a lumpsum or a large amount of money over a short period of time. Personal loans have much lower rates than credit cards and you can spread the payment over several years. The drawback is that you will have those payments to make while your financial situation is evolving.

■ Plan for what comes next

By definition, major life events will change your life. So take these future changes into consideration. For example, you might want to throw the largest wedding ever, using a personal loan to finance it. But have you thought about how your newly formed family will make the monthly payments? Have you had a candid conversation with your spouse about your finances and how you will manage joint household expenses? Answers to these questions can be a guide to how much you should spend initially.

Similarly, plan for your changing requirements over the years as well as inflation and emergencies. When you’re considering your spending on a major life event, make sure it won’t put a strain on your long-term finances.

Yes, you need to maintain a minimum level of comfort, pride and satisfaction, but that should not be at the expense of your financial well-being.