Decisions Decisions....Life is full of them. Some decision are more important than others, while some are certainly more fun to make. With all the decisions you make in life, there are many that can have a significant impact on your financial position...including some may not consider a traditional financial decision. For your consideration this month, here is my list of the top ten decisions a person will make which can dictate how life will play out financially.
10.) Who you chose as friends/associates: We may not be able to chose our family, but we have all the control to decide who we want to have as friends, associates or companions. Socializing with successful people can push a person to also want success. The opposite is also true. My belief is that being around cheerful optimistic people can help you be happy, productive and successful.
9.) Deciding to, or not to "keep up with the Jones': While being around positive/successful people may help you accomplish your goals, it may also encourage you to ignore reality. Being financially successful comes in many forms. If you have one less car, or take a less luxurious vacation than the person to your left that does not mean that you are not 'making it'. Don't base your idea of success on other people's lives.
8.) The lifestyle you chose to lead - your hobbies: Extrapolating on the previous entry, you have to be realistic about the life you can lead and the resource available to you. Wanting to live a lifestyle you can not afford may lead to you not being able to afford the good life you could have had.
7.) Where you live: Everyone reading this from the Bay Area is either nodding their head, groaning or both. The beach or the big city may come with a scenic view, but it may also comes with a large cost of living price tag. As the years roll on the expenses increase exponentially. A zip code should not be a factor for feeling accomplished. Happiness comes in many settings.
6.) Purchasing a home: The largest one time expense that people experience also comes with a lot of factors that need to be considered. Not only do you need to understand what you can afford, the proper down-payment, mortgage terms etc., but there are plenty of variables that are either ignored or are unpredictable. Do you like your neighbors? Does the city have a history of raising property taxes? Are the schools properly run? Also, from an investment point-of-view, purchasing a home instantly over-weights your portfolio in one asset. Getting yourself into a bad situation can ruin your financial standing.
5.) Retiring: Retiring is the ultimate goal that everyone is working towards, so this is the one topic that appears in any financial top ten list. I only rank the decision as five out of ten, because it is much more gradual and fluid process than it once was. It is also not a finite and irreversible decision (although some of the variables, e.g. social security and pension choices, can be). Retirement is an important decision not just for the financial implications, but also for the self-reflection and self-realization required when someone needs to decide how he/she wants to live 'for the rest of his/her life'.
4.) Having children: There is the obvious costs of raising children, but children are also a large factor (if not the main factor) in shaping some of the previous decisions listed (where you live, the size of the home you purchase, etc.). Having children can also have financial ramifications beyond your control. Our hope is that we can instill positive values and good judgment in our children as we raise them, but our influence can only go so far. Bad financial decisions made by our children can easily become our burden. While there is a point when we want our children to become self-reliant, that is easier said than done. When adult children get into a financial bind, it's hard for parents to turn their backs on them or keep their wallets closed.
Then again, there is also the chance that your child, or two of your children, or more will become a grand success beyond anything we can ever imagine! If we get lucky maybe our Nobel Prize winning, sports hero, surgeon child will make all of our financial decisions easy! One can hope...
3.) Who you marry: You have developed good financial habits. Hopefully the person who wins you heart has a similar mentality. If not, hopefully he/she is easily influenced. Once married, both God and the government see you as one unit and your spouse's financial sins become your own. No matter how good you are with money, if your significant other doesn't exercise a similar level of responsibility your efforts will go to waste. A common vision of your financial goals is also important to increase your chances of financial success. Not to mention that the number one reason given for the cause of a divorce is....'financial issues'.
2.) Your education choices, career choices and business ventures: The fuel of your financial goals is your ability to bring in an income. How you chose to make your money is a big factor of exactly how far you can go. Choosing the right education path, career path and, if applicable, business plan can make or break your long term earning potential. There is a big difference in the salary of a successful biochemical engineer and a failed underwater basket weaver. Moreover, without happiness, life is kind of pointless. So it is important to find the happy balance between career success and career satisfaction.
1.) Choosing to save early and save often: 'The most powerful force in the universe is compound interest' - Albert Einstein (maybe). Picking this as the number one entry may seem lazy, but the backbone of all financial plans to get your money working for you as early as possible. Understanding the benefit of deferred gratification and training yourself to become a power-saver early can give you more options in life and make all future decisions much easier. Conversely, wait too long and your room for error shrinks with each passing year.
If you don't feel you have saved enough start now. If you think you are saving too little save more. Tell your friends, your spouse and your children, 'a dollar saved now is two dollars spent later'.