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Life Events Are Financial Events

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John Lennon said, "Life is what happens to you while you're busy making other plans ... so make sure you have an emergency fund." (He didn't really say that bit about an emergency fund -- what he actually said was "Paul is such a wanker.")

Yes, folks, life happens -- you get married, you have kids, you get laid off, you drive your car into a tree. And most of life's big events have financial consequences. The best thing you can do to prepare for Fate's fancies is to have a solid financial plan, which begins with three-to-six months' worth of safe, accessible cash or cash equivalents set aside. (Need help assembling your own written financial plan? We Fools like the fee-only planners of the Garrett Planning Network, who are now offering a limited-time 10% discount to Motley Fool readers. Just click on your state on the Locate an Advisor map, and look for the Fool logo for participating advisors.)

But an emergency fund alone won't protect your financial empire. So if you've recently coupled, reproduced, collided, separated, retired, jiggled, or succumbed, here are some areas of your finances that you should reevaluate.

Update your will, emergency contacts, and beneficiaries. Your legal papers should keep pace with every addition to and subtraction from your family. You don't want your ex-wife to inherit your house, nor do you want your new bundle of joy to lose her legacy. Plus, legal documents are governed by state law, so these documents need overhauling every time you move across the border. And besides updating your will, change the beneficiaries you declared on all your investment accounts and insurance policies.

Re-evaluate insurance needs. Perhaps you need more (because you have added to your brood), maybe you need different kinds (because you've retired and need a Medicare supplement), or maybe you can consolidate your policies with the same company to save money.

Change flexible spending withholding. Usually, once you decide how much to be withheld for medical or dependant-care flexible spending, you can't change the amount. However, the exception to that rule is in the case of a major life event, such as a birth or job change. If your flex spending needs change, now is the time to contact your benefits specialist.

Review your tax withholding status. All kinds of factors determine how much you'll pay in taxes, and, thus, how much you should have withheld from every paycheck. And since you just filed your taxes (right?), you know if you're having too much taken out (which may feel good when you get that refund check, but you lost use of that money for months) or too little (which may have resulted in a surprise, and penalties).

Determine if you're having the right amount withheld from your paycheck by your employer. Download Form W-4 (.pdf file) from the IRS website, or use their withholding calculator. If you have too much taken out of your paycheck, you'll lose the use of that money until you get your tax refund. Have too little withheld, and you'll pay a penalty.

Look into hair replacement. The one life change we all face is aging, which for many of us means balding. We suggest a Chia Head -- it's earth-friendly and goes great with most meat dishes.

If you're wondering how a recent life change will affect your finances, consider a free "get acquainted" with a member of the Garrett Planning Network (solutions for balding not guaranteed).

Robert Brokamp -- who ranks "wanker" as one of the top three most fun words to say (right behind "shilly shally" and "onomatopoeia") -- is the editor of The Motley Fool's Rule Your Retirement newsletter service, which you can try for 30 days, free! Per the Fool's disclosure policy, we declare that no Chia Pets were harmed in the writing of this article.


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