By Matt Becker

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I’ve been through a number of big life changes over the past few years, almost all of which had a big impact on my financial situation.

Four years ago Casey and I had our first child and at the same time switched to a single income. Our expenses increased right as our income was decreasing.

Two years ago the start-up company I was at shut down, leaving me out of a job, and I decided to start this business. Again, our expenses increased (to fund the business) while our income decreased.

And just after that we abruptly decided to move from Boston to Pensacola, which reset many big pieces in our financial lives.

Each of those changes has been challenging. We’ve managed some better than others, and through those experiences I’ve a lot about how to handle them.

So in this post I’m going to show you how to prepare for any big financial change. It could be having a child, switching to a single income, changing jobs, starting a business, moving, or anything else where your expenses are increasing or your income is decreasing

This process will help you gauge your readiness, practice the transition before it actually happens, and provide some extra savings to make the transition that much easier.

Step 1: Estimate your change in monthly income

Many of these big transitions result in a change in income, with either more or less money coming in each month.

It may be a temporary change, like for maternity or paternity leave. Or it may be a more permanent change, like when switching to a single income or changing jobs.

In any case, you’ll want to have a rough estimate of your income after you’ve made the change and how that will differ from your current income.

What you really want to compare here is your after-tax income, since that’s the money you’ll actually have available for spending and saving.

You can get your current after-tax income from a recent paystub. Or if you’re self-employed, you can calculate it by subtracting your recent estimated taxes from the income earned over that same period.

To estimate your after-tax income one you’ve made the transition, you can use a paycheck calculator like the one from paycheckcity.

You don’t need to worry about getting too precise here. Just get a rough estimate of the change income.

Step 2: Estimate your change in monthly expenses

Similarly, you’ll want to have a rough idea of how your expenses will change through this transition. That means both knowing what your expenses are now and estimating what they will be in your new situation.

If you’re already tracking your spending you’ll have a good idea of your current expenses. If not, you can either sign up for a service like Mint or You Need a Budget that will automate a lot of the process for you, or you could start tracking it manually.

Either way, I would try look back at least a few months to get a sense of your average spending. And don’t forget to factor in annual costs like insurance premiums that may not have come up over that time period.

Here’s a step-by-step process you can follow to get this done: How I Track My Spending.

Then you’ll want to make a ballpark estimate for how those expenses will change once you make the transition.

There are a lot of potential changes here depending on the kind of transition you’re making, from housing, to transportation, to insurance, to any number of other things. Again, don’t worry about being too exact here. Just make sure to factor in any big, obvious changes.

For the specific situation of having a baby, BabyCenter has two good calculators here and here that will help you estimate your new costs. But also remember that those are just averages and your situation may be different, so don’t be afraid to add or subtract things from those calculators based on your personal situation.

Step 3: Calculate the total change

Take your total estimated change in income, subtract your total estimated change in expenses, and you’ll end up with a single number representing your total estimated change in monthly cash flow.

The calculation looks like this:

Total Monthly Change = (Future Income – Current Income) – (Future Expenses – Current Expenses)

If that number is positive, you have nothing to worry about because you’ll have more money available each month in your new situation than you do currently. Instead, you can start thinking about what you’d like to put that extra money towards.

If that number is negative, you’ll have to make some adjustments. The final two steps show you how to do that.

Step 4: Start living on your new budget now

If your total change from Step 3 is negative, the first thing you’ll want to do is start living as if that change has already happened.

That is, start living on your new budget now, before you’ve actually made the transition.

This does two big things for you.

First, it allows you to practice living on that new budget now, before you have the additional pressures that come with navigating your big life change. You get to work out the kinks, make mistakes, and get into new habits ahead of time, which will make the rest of your transition a lot easier.

Casey and I did this before we had our first child and it was incredibly helpful. It was stressful enough trying to figure out how to take care of a baby, and the fact that we already had some practice with the money side of things relieved us at least one anxiety.

Second, living on that new budget now allows you to…

Step 5: Put the extra money into savings

For now, living on that smaller budget means there’s extra money coming in that you’re not spending.

If you automate that extra money into a savings account, you’ll build a buffer that will help you handle any unexpected expenses that come with your transition.

Because the truth is that no matter how much you plan, there are always going to be things you didn’t see coming. Having cash on hand lets you handle them AND frees you from the anxiety of worrying about one big expense throwing everything off track.

Don’t be afraid of change!

Change is exciting. It’s often the source of a lot of happiness, and the truth is that change is the only way to build a better future.

But change can also be scary. You never really know what’s on the other side until you get there, and all that uncertainty can be stressful.

But with this process, you can be confident that you have the financial side of any big change handled so that you can keep your family on track.