Budgeting for Life Transitions

Whether a major life transition is planned (such as a career change) or unexpected (such as a divorce or layoff), it usually creates financial worries. One way of dealing with this insecurity is to calculate how far down the road your financial resources will carry you while you work on your transition.

First, list the monthly expenses you incur to live your current lifestyle. Then, match those expenses against the financial resources you will have during the transition, including cash on hand, reliable cash inflows such as a spouse's salary or investment income, a severance package or unemployment compensation if applicable, and investment assets that you can liquidate if necessary.

After recording the expenses for your current lifestyle, repeat the exercise with a modified spending plan where you cut certain areas of your budget without seriously changing your lifestyle. This might mean you do certain things less frequently or choose less expensive alternatives for some spending habits.

Lastly, create a bare-bones budget with only the expenses necessary for survival.

These three budgets allow you to project how long your money will last at different spending levels and determine when and how to cut back. You may want to continue with your current lifestyle for a few months and switch to the modified spending plan if you need more time; if an unexpected obstacle arises, you can always drop to your survival budget.