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Prepare: Steps to Financially Prepare for Transition

Step One: Organize and prepare

Whether you are a traditionally-organized person or one who tends to work in “piles of papers here and there,” this is the time to pull together a system for recording and filing paperwork. Your process through this transition will be easier and less stressful when you can find the records you need. Here are the basic files you will need to be able to successfully map out your financial future after transition:

  • Household budget (include larger changes to the budget over the next five years – like children’s college education or new car purchase)
  • Tax returns for the last five years
  • Bank statements for the last two years
  • Retirement account statements for the last two years
  • HSA/FSA or other health account current statements
  • Paystubs for the last four months
  • Current credit statements

Step Two: Be realistic with your expectations

Draw up a picture of what you want your financial future to look like in the future. Do this for a snapshot of:

  • 12 months from now
  • Three years from now
  • Five years from now
  • Ten years from now
  • Retirement

Doing this will give you a destination for mapping your finances. When you draw up these scenarios, be hopeful, but realistic. Consider your income now and where you expect it to be in the future. Consider those larger expense items that might deplete some of your savings. Include plans for your home, education for the family, second homes,

Step Three: Focus on life after transition, not the process of the transition

Whether you are going through a divorce, loss of loved one, disability case, or loss of career, the process you are in will not last forever (even if it seems that way now).

While engaged in the arduous process of negotiation and planning for the “best” resolution, it’s easy to lose sight of the future. The transition process will eventually end, and what kind of life you have afterward will depend in no small measure on whether your resolution fits your post-transition life.

As difficult as this is, do your best to take the emotion out of the equation. The situation you are finding yourself in is not fair. But that does not mean you cannot have a fair and healthy resolution by planning carefully.

Picture yourself after this transition in terms of where you want to be financially, and take logical steps to get there. Emotionally-driven transitions usually result in less-than-adequate resolutions simply because of the inability to see a clear picture when your decision process is clouded by angst. 

Step Four: Understand the consequences of this transition, now and in your future

The first step in understanding your new financial reality is having a true understanding of your cost of living and having realistic expectations. Determining whether you can afford to keep the house, what your new tax situation will be like, what a budget post-transition will look like are all major financial decisions that should have the input of a financial advisor with experience in transition related issues.

The benefit of having a financial advisor is to have a resource that is unbiased and whose sole purpose is to educate and help you consider all possible financial paths.

Your transition is just as much a financial issue as it is a legal and emotional issue.

The financial decisions you make today will impact you for the rest of your life, and a financial advisor can help give you peace of mind to help you answer, “Will I be okay financially?”

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