Over the course of most people's life, there are a number of major expenditure decisions that we must all face. Here we look at why each of these 5 key decisions are so important and what you should consider before making your decision.
A car purchase is far from the biggest decision mentioned on this list. But the reason this is first on the list is because a vehicle is often the first major financial responsibility for many people.
This is especially important for for teenagers, as car ownership can be a great opportunity to learn how to budget and manage the costs of owning a car at an early age.
It is also important to be aware that choosing to not drive a car to and to save that money is equally as big of a decision and will have a significant impact on other key purchases in your life as well.
New or Used: How much more does a new car cost? How much longer will a new car 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?
Maintenance Costs: How much monthly upkeep costs are required to maintain the car? What are the costs of gas, parking, insurance and repairs?
Accessibility: Does the area you live in have a good public transportation system? Are there constant traffic jams in your area when driving? What are other available alternatives to driving?
Necessity: Does your job require you to drive? How much time do you save from being able to drive to work or school? Will you be able to invest that additional time saved into value added activities such as a side gig, study time, or time with family?
Education is generally an investment that people make with the goal of realizing a return when by turning it into a career. Your career choice and education to pursue it will have life long ramifications towards your finances.
We are generally faced with this decision at a very early age. Some choose the traditional route of post-secondary education, other go through an apprenticeship program or even starting your own business.
Most people choose a career path based on their passion or income potential, and while that is great, a lot of people tend to ignore the costs, the sacrifices and especially the risks that come with choosing that path.
Income: How much do people expect to make in your profession? Do you have an income target? Is the income enough to sustain your desired lifestyle?
Passion: What attracts you to that line of work? Are you passionate about your career?
Skills: What skills do you gain from your education and work? Can you apply those skills in other areas of work or life?
Opportunities: What are the new opportunities opened up to you based on your skills, education and line of work? Does your career allow you to easily transition to new opportunities?
Schooling: How long does it take to finish your schooling and training? How much does your tuition costs and will it require your to borrow money? Does the education from schooling provide you an advantage towards your line of work?
Time: Does your line of work require you to work long hours and overtime? Are you able and willing to dedicate the time to your work without experiencing burnout?
Restrictions: Does your line of work have regulations that restrict you from engaging in certain activities and keep confidential information? Do you need to maintain an image to represent your company or occupation during off hours?
Location: Would your work require lots of travel? Does your work require you to move or be relocated to a new location away from your family and friends?
Prospects: What percentage of people are able to complete their education or training and find a job? Is off time such as season work expected in your desired career? What is the turnover like in your desired line of work? What if you end up disliking your line of 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?
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? Are you able to either temporarily or permanently transition to a different line of work if something unexpected happens?
For many people a home purchase is the single biggest financial transaction in their life. Generally the decision to buy a home is a 25 year or longer term investment with significant ramifications on an individuals 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, as opposed to renting or just 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 will you need to set aside in case of major renovation or home improvement work down the line?
Cash Flow: What are your net cash inflows and outflows? What is your plan in case of job loss or 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 your work, to good schools, to the city and so on?
Physical Factors: What type of property are you looking for? 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 on home improvement? Are there any other legal implications of home ownership?
The decision choosing your partner and whether to start of family or not is one of the most important decisions of your life. Although most people do not consider this a financial 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 allow each other to spend as much as they earn? Are you aware of any past debts or each others 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?
Decisiveness: Are you in the drivers seat in terms of finances or is your spouse? Who gets the last say in terms of spending and savings decisions? Are you the type who will give in to your spouse or children when they scream and cry?
Children And Dependence: 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? 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 had when you were earning money? What is 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 sponsored pensions or government retirement savings plans such as a 401K or RRSP? How risky are your investments and when do you need to restructure your 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?
