Making Big Life Changes and How to Avoid Money Mistakes

Making Big Life Changes and How to Avoid Money Mistakes

Anytime you consider making a big life change or embarking on a new adventure, there’s at least one issue you’ll always have to contend with – money.

Whether you have the money you need to make a big move or not can help you along or stand in your way.

That’s not to say money will determine your happiness from making a big change or taking on some new challenge in your life.

There’s a lot more to life than money, and happiness is never guaranteed. Still, there’s no denying that executing your ideas and goals usually requires some cash.

Unless you get incredibly lucky, it’s not enough to just dream about making a big life change; you need to plan for it. That includes thinking about your personal finances and how your money habits can set you up for success or impede your progress altogether.

Two Key Money Habits

Are you itching to switch careers? Want to take a year off to travel the world? Are you contemplating launching a new business?

All of these things mean taking on some risk in your life. There may be great potential for rewards when you make big leaps like this, but you’re just as likely to face failures, mistakes, and setbacks, too.

You can mitigate the risk of failure — and make sure it’s not fatal to your ultimate goals — by looking closely at your finances before you make a big move.

Two facets of money management, in particular, really influence how easy (or difficult) your upcoming life change may be for you. These factors are:

Of course, these two things are always helpful in life. Still, keeping your expenses low and having access to a large pile of cash can have an especially great impact when uncertainty and increased risk enter the picture.

Big Life Changes Often Mean Less Income

Why do these two aspects of your personal finances play such a big role in your ultimate success or failure when it comes to a big life change?

Most big life changes people make can lead, for one reason or another, to earning a lower amount of money — at least in the short-term. Some changes could even mean the elimination of income entirely.

Think about it: If you want to change jobs to pursue your dreams, that might mean taking a lower-paying position in a new industry. If you want to launch a business, it could be a while until you’re able to write yourself a paycheck.

And if you want to travel the world, you might need to take a break from working (and earning money), for a few months.

Having small, manageable expenses and enough cash in the bank to pay for them are key determinants of your ability to make a big change in your life when your income drops — even if that drop is temporary or just a part of the journey to making even more income at some point in the future.

How Living Well on Less and Keeping a Rainy Day Fund Make Life Changes Easier to Manage

Let’s use an example to illustrate how this could work and why low expenses + emergency funds are a fundamental formula for success:

Joe Danger, CPA is an auditor at a Big Four accounting firm. Unfortunately, the long hours and tedious work have made Joe miserable.

The good news for Joe is that he’s earning a fairly sizable paycheck. The bad news is, Joe has some massive ongoing expenses and household bills. While Joe doesn’t spend more than he makes, he and his family are living paycheck-to-paycheck.

Like most Americans, Joe spends way too much of his income on “stuff:”

  • An expensive car lease? Check.
  • Huge mortgage payment? Yup.
  • Super expensive cable television package? You got it!
  • Dining out 5 nights per week? You bet.
  • Monthly bill for financed home furniture? You get the point.

If there is a way to lock in a high monthly payment for a long stretch of time, Joe has jumped on it. Unfortunately, Joe barely knows he’s doing anything wrong.

The Fallacy of “Living Within Your Means”

Common financial wisdom tells us to avoid spending more than we make or “living above our means.” While that’s good advice that will keep us out of debt, it won’t necessarily allow us to rise above our expenses. Just living at your means keeps you in a position where you can’t build upward or make any big moves.

Without some wiggle room between your income and spending, you can’t save money for the future or make any life changes that result in a lower income.

Going back to our example with Joe, you’ll remember he isn’t necessarily living beyond his means. He’s living at his means — but not below them.

Because Joe is spending so much, it’s impossible for him to save any money. Even though he hates his job, he simply can’t afford all those monthly bills without it.

The bottom line: Having high monthly expenditures can prevent you from having the freedom to make big life changes that are important to you.

Unfortunately, Joe may have to learn this lesson the hard way, or he may never learn it at all.

How Joe’s Life Could Be Different

Now, let’s ask a few questions that could help Joe – and you – find a better balance.

Do you need to have a giant house with an accompanying giant mortgage payment? Not necessarily. You could purchase a modest home or rent instead.

Do you need to lease a brand new luxury car every three years? No, but you enjoy traveling in style.

Did you need to finance new furniture? Do you need to eat out at restaurants five nights per week? Of course not.

None of Joe’s expenditures are necessary. They’re just nice to have. But you need to ask if “nice to have” luxuries and upgrades to your lifestyle are really worth the trade-off. While it’s fun to buy nice things, you’re trading away your flexibility and freedom to make a change when it’s time to do so.

Save Now to Make Your Life Change a Reality

If you’re thinking of taking an adventure or making a big change in life, it may be a good idea to examine your expenses and savings first.

The good news is, once you successfully manage your spending, saving money happens automatically.

If budgeting or tracking your spending sounds boring, you can also just take the easy way out: automate your savings.

It’s not about depriving yourself or cutting out every single cent of discretionary spending. It’s more about making sure you create balance. With some self-restraint and planning, you can live a lifestyle you enjoy today without eating up every available dollar and having nothing left to save.