money plan

Afraid to move forward on the next big thing in your life because you're not sure how you'll afford it, or you don't have a money plan? Let me show you how to prepare financially so you can go onto the next big thing in your life with confidence.

Ready (you think) to move onto the next big thing in your life? You know, purchasing a new home, combining households, having a baby, or any other utterly life-changing event.

Or have you got a lot of mental obstacles built around this next move because it seems financially unattainable?

The fact is, you can usually figure out whether or not you can afford the purchase price of the next big move in your life. And not just the purchase price, but also the monthly costs that will be introduced into your life as well as a result of the purchase.

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It's called making a money plan.

The fact is, you can usually figure out whether or not you can afford the purchase price of the next big thing in your life. Click To Tweet

I mean a new home has an asking price and you can either save up for that amount and/or get a mortgage for the rest or not. But what about the revolving monthly costs? Can your budget and cash flow absorb the extra costs (without making you sorry you did it because you can't afford the rest of your life anymore)?

That's what we've got to find out to make sure you don't get stuck in a sucky situation. You need a money plan to help you with how to manage your money as you move forward in your life.

Foolproof Step #1: Conduct Some Research

Ask yourself this question: what are the extra revolving monthly costs involved with this next big thing in your life?

Then write down your answers.

For example, with a new baby, you will have medical costs, supplies, a health insurance premium increase, etc. If you're looking to purchase a new home, you'll need homeowner's insurance, property taxes, repair money, etc.

Foolproof Step #2: Set Up an Imaginary Budget

Research an approximate price for each of the revolving monthly items on your list, and write that amount next to the item. Add up everything to get a figure for how much extra per month you will need to have in order to afford your purchase.

This is the amount you need to test out.

Foolproof Step #3: Test it Out for a Few Months

You now want to put a stress-test on your finances to see if you can do it (and do it at a level where you’re comfortable). So each month for the next several months you need to set aside that figure from Step #2 into a savings account as if you were already paying those costs.

Bonus benefit to doing this money plan stress test: you’re simultaneously saving up towards the purchase price! It's really a saving money plan. 

I would do this for at least three months to really get a sense of how it would be like living under this new cash flow strain.

After a few months of this, assess where you are. If you have a partner, talk to them about their experience. How's it been? Did things work smoothly, or did you feel constrained? If you feel constrained, are there ways you can ease that (such as earning more money or shopping around better for greater deals)?

Bonus Foolproof Step #4: Another Stress Test

Technically, you’re finished (and way ahead of the game) if you did those three last steps.

But I want you to do one more thing because it’s what I would do if my own money was on the line. Run a few different scenarios. So how would any of the following change how you could weather this next financial step:

  • Losing one Income: going down from two incomes to one income (due to a layoff, one parent staying home, etc.), or with one partner having maternity leave pay only for X amount of months
  • Holding Two Mortgages: Being unable to sell your old home for several months before purchasing your new home and taking on a new mortgage. How would you fare then?

I would love to know what your next big thing is, other stress tests you’ve put on your money plan scenarios, or stress tests you’ve experienced hands-on in the past. Who knows, you might help someone else out who is thinking about doing what you’ve already done.

6 replies
  1. Eva Rabinovic
    Eva Rabinovic says:

    great article, hope it will help me. I am trying for some time to find some successful method which will help me to get rid of debt. Most of blogs I found are just: bla bla bla without any useful tip, but yours is something different. Thanks for sharing

  2. Rhiannon @ The Home Loan Coach
    Rhiannon @ The Home Loan Coach says:

    I agree with Eva, you give some really great tips. I know you say you are not a financial adviser- but maybe you missed your calling?

  3. Tom Porter
    Tom Porter says:

    This is an excellent article on a topic that doesn’t get the attention it deserves. People focus so much on saving that deposit and qualifying for a loan that they often neglect to consider the ongoing sacrifices they will need to make for the next 10-20 years. Or – are already so set on the purchase when they realise that they end up going ahead without thinking.

  4. Mrs. Adventure Rich
    Mrs. Adventure Rich says:

    Yes! Before Mr. Adventure Rich and I bought a house, we started to “pay a mortgage payment” each month. We estimated a mortgage payment, took that money and paid it into a savings account. That account then became our down payment when we did buy a house! And when the first mortgage payment came around, we were prepared and used to it 🙂

  5. Lily @ The Frugal Gene
    Lily @ The Frugal Gene says:

    Interesting concept!!! I did this before when we were buying our house but not to a degree of writing it down (which would have been better). Self induced stress makes you appreciate things more.

  6. alex wilson
    alex wilson says:

    Nice article and well explained. Do you know what is the next big thing which can help us to come out from debt and can also provide very high returns? That is the investment in cryptocurrency. I have recently started and returns are amazing. You guys should also explore this.

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