Our financial decisions have a huge impact on the quality of our life. Here we explore 5 of the most important financial decisions and questions you should consider while making those decisions.
A car purchase is not the biggest financial decision on this list, but it is often the first major financial responsibility for many people. This is especially important for teenagers, as it is great opportunity to learn about managing expenses and unexpected costs from an early age.
It is important to understanding that choosing to not drive a car is also a financial decision. Saving that money and choosing alternative methods of transportation is equally impactful towards your other financial goals.
New or Used: How much more does a new car cost? How much longer will a new car be expected to last? And how quickly does the value of the car depreciate?
Lease or Own: Is it better to lease or own the car? Is it better to finance, buy outright or lease to own? What are the lease/loan rates and terms of the contract?
Maintenance Costs: What are the monthly upkeep costs to maintain the car? What are the costs of gas, parking, insurance and repairs? Are you able to put money aside in case of an unexpected cost?
Accessibility: Does the area you live in have good public transportation or other alternatives? Do you have family or dependents that rely on the vehicle? Do you need to carry heavy loads around often?
Necessity: Does your job require you to drive? How much time do you save from driving compared to alternative means? How often will you be driving your vehicle?
Education is generally an investment and financial decision that people make with the objective of building a career. Your career choice and the education requirements will have life long ramifications towards your financial health.
Often we when we choose a career path, we base it on passion or look at income potential. While those are very important, what is often ignored are the costs, and especially the risks and uncertainties of that career path.
This is something we are tasked with at a very early age, before many of us even understand the financial consequences of it. Post-secondary education, apprenticeship programs, entering the trades or starting your own business present tradeoffs regarding both future income and current expenses.
Income: How much do you expect to make in this profession? What is the income growth like? Is the income enough to sustain your desired lifestyle?
Passion: Are you passionate about your career? What attracts you to that line of work? Does what you have in mind align with what the actual work is like?
Skills: What skills are you gaining from your education and work? Can you apply those skills in other areas of work or life?
Opportunities: What potential opportunities are offered up based on your skills, education and line of work? Does your career allow for easy transition to new opportunities?
Schooling: What is the required length of time for schooling and training? How much does your tuition costs and will it require your to borrow money? Would the education from school provide an advantage for your desired career?
Time: Does your line of work require you to work long hours and overtime? Are seasonal gaps or other extended periods of time off expected in that field? Would the time dedicated to work prevent you from experiencing other things in life?
Restrictions: Does your work have regulations that restrict you from engaging in certain activities and keep confidential information? Do you need to maintain a public image to represent your company or occupation during off hours?
Location: Does your work demand a lot of travel? Does your work require you to move or relocate away from your family and friends?
Prospects: What percentage of people who complete their education or training and find a job? Is off time such as seasonal work expected and how does that impact your finances? Is turnover or career advancement common in your career? What are your options if you end disliking the work and want to do something different?
Failure: What are your options if you are unable to complete your degree or if your business fails? Will you be able to manage the student debt or business debt that has accrued as a result of your ventures? How long will it take to recoup your initial investments?
Incapacitation: What happens if you lose your ability to earn money from your primary source? Is insurance available to cover lost income for different situations? Would you be able to temporarily or permanently transition to a different line of work? Does the nature of the work mean higher inherent risks to your life, health and safety?
For many people a home purchase is the single biggest financial transaction in their life. Generally the decision to buy a home is a long term investment (possibly more than 25 years) with significant impact on an individual's financial health.
There are two key dimensions to consider when deciding to buy a home. The first is deciding whether it is actually worthwhile to buy a home (to live in or as an investment). The second is, if you were to buy a home, what is the best way to approach it?
Mortgage: How much of a mortgage can you be approved for? What is the interest rate, term and monthly payment of your mortgage? How much of a down payment will you need to put down?
Upkeep Costs: How much do property taxes, insurance, maintenance and other non-capitalized expenses cost? How much do you need to set aside for major renovations or home improvement work down the line?
Cash Flow: What are your net cash inflows and outflows? What is your plan in case of loss of an income source? Are you able to sustain your quality of life while managing the financial responsibilities of home ownership?
Location: Do you expect to be staying in the same location for a prolonged period of time? What happens if you move to another city or country? How important is proximity to work, to good schools, to family and so on?
Physical Factors: What type of property would you be satisfied with? Will there be enough space for you and anyone that you are planning on living with? What are you willing to settle with in order to be within your price range? Is the property a fixer-upper?
Market: What is the current housing market like in your desired area and how to other areas compare? How do rental costs compare to home ownership costs? How does the housing market compare to other investment options such as the stock market?
Legal Factors: Will it have an impact on your residency status? What are the tax implications when you buy, sell or invest in a property? Are there restrictions on what you can do with your property such as building a new garage? Do you having an understanding of the other legal implications of home ownership?
People don't initially associate choosing a partner and starting a family with being a financial decision. While this is indeed a very important personal decision, it can have a greater impact on your financial situation than any of your other decisions.
There are many folks who have excellent financial management habits but once they enter a relationship with someone, it all goes downhill. On the contrary, finding a partner who has good saving and investing habits, or someone that can motivate you to succeed in your career or business can elevate your financial situation significantly.
Transparency And Openness: Are you and your spouse able to talk about finances together? Do you share each others financial information? How much do you monitor each others spending and investments or do you prefer to keep that aspect independent? Are you aware of each others past debts or credit scores that can impact your ability to obtain financing?
Financial Goals And Habits: Are your financial goals aligned? Are you a saver while your spouse is a spender? What quality of life are you expecting?
Who Makes The Decisions?: Is it you or your spouse in the drivers seat in terms of financial planning? Who gets the last say in terms of spending and investment decisions? Are you the type who will give in to your spouse or children when they scream and cry?
Children And Dependents: Will you or your spouse be taking time off work to look after your kids? How much are you investing into your child's education and future? How much time do you want to spend with your family? Is there anyone else who depends on your income?
Legal Matters: Have you talked about or considered getting a prenup prior to marriage? Are you and your spouse prepared in case one or both of your loses their earning potential? Are you aware of the tax implications of marriage?
Many young people tend not to be concerned about planning for retirement, but this would be one of the biggest mistakes to make. The earlier you start planning for retirement, the more you are able to take advantage of compounding returns.
Retirement: By what age do you want to retire? Do you need to delay retirement in order to maximize social security benefits? How will you be spending your time in retirement? Will you still be pursuing income generating activities? Will you be retiring alone or do you have a spouse?
Expenses: Do you expect to maintain the same lifestyle you as when you were earning money? What are your living arrangements for retirement? Are there any debts or medical bills that you are required to pay off? Do you have any dependents that you still need to support during retirement?
Savings: Are you prioritizing your savings goals right now? How much are you putting into your pensions or government retirement savings plans such as a 401K (US) or RRSP (Canada)? How risky are your investments and when do you need to switch from a growth portfolio to an income portfolio? How many years do you want your savings to last after you have stopped working?
Will: How much do you want to leave behind to your children or heirs? Who do you want to grant power-of-attorney in case you become incapacitated? Do you understand the tax implications upon death?
