The Six Biggest Financial Decisions

Decisions, decisions.

There are loads of financial decisions we make throughout our lifetimes.

Some are big (as we’ll discuss here) and some (most probably) are small (like choosing between the high-priced or store brand peanut butter).

In fact, I’ve written a lot about financial decisions we all face over the course of several posts.

Here’s a sample of those:

• The 12 Most Important Decisions You Must Make Before You Retire
• Ten Big Financial Moves that Will Skyrocket Your Net Worth 
• 20 Retirement Decisions You Need to Make Right Now 

Apparently, retirement decisions are the most needed. LOL!

A while back I was wondering about the biggest/largest financial decisions most people make. So I posted the following in the Millionaire Money Mentors (MMM) forums:

I’ve been thinking about the topic of the biggest financial decisions of our lives (the decisions that involve the most amount of dollars) and want to ask you all for your thoughts.

Most people say it’s buying a house, but I don’t think so. I don’t think it even makes the top five.

Here’s my list to get the conversation started – tear it apart, add to it, etc. and I’m sure we’ll all come up with a great list collectively:

• Picking a mate (could be not picking a mate as much as picking the right one.)
• Retirement.
• Selecting a career/field.
• Going/not going to college.
• Controlling your spending.

Some others for consideration:

• Selecting/managing your investments
• Buying a house
• Managing your career (this could be part of #3)

Any others? Maybe we should shoot for a top 10 instead of five. 🙂

Let’s see what we come up with…

From there the comments flowed. I’ll share many of them as well as add my comments where appropriate.

And at the end you can chime in with your take on this subject.

Where to Live

Let’s begin with this comment:

I’d add: Where to live.

Factors include:

• Are family members / friends nearby?
• Where do you want to raise a family?
• Employment opportunities?
• Access to activities (museums, arts, music, live sporting events, etc)
• Access to outdoors (beach, ski slope, hiking trails, fishing, etc)
• Access to transportation (airport – preferably a hub / international)
• Cost of Living
• Taxes

Obviously both cost-of-living issues as well as the type of home you live in have HUGE implications for your financial future.

I’ve talked about both of these issues in separate posts. For more specifics, see Where You Live Has a Big Impact on Your Net Worth and Stop Acting Rich: The House You Buy Determines Your Wealth.

Pricey Kids

Now let’s move on to the next two comments, which I am sharing together as they are on the same general topic:

I’d add creating successful and independent children. The cost of education (K-12, college, trade school) is part of it. The other part is their financial independence so that you do not need to continue to support them as young adults.

And this:

The choice to have (or not have kids)! Raising kids isn’t cheap — definitely a top 5 for us.

There’s no doubt that kids can be expensive — from direct costs like private education and daycare to indirect ones like loss of income/career advancement.

The latter was brought up in a comment as follows:

Leaving the workforce (or not) to be a stay-at-home parent can make a huge impact on family finances, and for many years to come.

A few comments here:

• This is especially difficult where you have two high earners. Giving up a big salary for 5-15 years can have a very large financial impact.
• If one spouse earns significantly less than the other (or has limited potential to grow their salary), the decision can be made easier, especially if the spouse wants to stay at home.
• It’s not a one-for-one trade off though when you lose a salary. In addition to foregoing income, you likely avoid costs like daycare, clothing, commuting, etc. — costs associated with the stay-at-home parent working. So the net impact isn’t as large as it might seem.
• When we had kids, my wife wanted to stay at home. She was an audiologist, so she made a good salary, but I made an even better one with more upside, so we made the move. She will say to this day that it was one of the best decisions of our lives. That said, these are highly personal decisions so YMMV compared to ours.

Drop the Anchors

The next offers a unique thought but certainly one worth considering:

I’ll add one more: Ditch low-value friends.

That sounds bad, but it’s a not-so-pleasant part of building wealth. If your friends constantly ask for money, expect you to pay for things, are negative people, or just operate void of any morals, that WILL catch up with you eventually.

Spend time around people who build you up, not tear you down.

This is in line with the whole “you are the sum of the five people you spend the most time with” thought process.

And the last comment is one of the reasons I started the MMM: “Spend time around people who build you up.” If you truly are the sum of the five people you spend the most time with, wouldn’t you want your financial time spent with people who know a lot about creating wealth? I thought so, which is why I started the MMMs.

Learn Personal Finance

Next we have an obvious one that only one person thought of:

I’m surprised no one has added deciding to educate yourself on all things personal finance.

They don’t teach this stuff in school! I remember asking our company finance person at my first job to help me understand the taxes being taken out of my paycheck, and he just shouted to me, “I’m not your personal accountant — you figure them out!”

At this point, I probably have close to the magic 10,000 hour number of reading blogs/listening to podcasts/working my own finances…and that’s all by choice, making it to me a key decision.

To me, two ideas related to this is “writing about money” and “talking about money” — both of which have impacted me dramatically.

You could argue that the majority of my wealth was created because I wrote out my plans online then discussed them with anonymous people on the internet.

I have said many times that I have likely made a million or two dollars in decisions based on my writing and associated feedback.

And in a related thread on MMM, we discussed how much people spend on an advisor who “only” takes a 1% fee on assets managed. It can add up to millions of dollars on a large portfolio invested over several decades. Why not spend some time and effort, learn the subject yourself, and save a million two?

A Different Set of Top Fives

Next we have this comment:

• Getting into a career or a niche where you can add value sustainably – ideally you get to this quickly following your education.
• Learning how to negotiate and develop your career (likely your most lucrative financial asset)
• Picking a mate / life partner (if applicable)
• Cultivating habits to have a perpetually high savings rate – under consuming on your income level
• Determining a robust and sustainable investment strategy.

Hahaha. Do you see earn, save, and invest in that list? I do. 😉

Overall it’s hard to argue with this list (for me it’s hard because it closely resembles my list — LOL!)

Finally we have this:

• Deciding to spend less than you earn
• Deciding to spend your life with someone who will work and walk the path with you (even if that someone is yourself).
• Deciding to make a conscious choice on the best investment you can make for you. For some, this is going into debt to boost earning. For some, this is going into debt to boost investing. For some, this is not going into debt at all and using hustle dollars as the seed for your chose path (this was me as I used my hustle to earn scholarships for school, and I graduated debt free with a great degree).
• Deciding to consciously measure your earlier choices against expectation, and course correct as needed. You can only improve what you can measure.
• Deciding to continue to educate yourself in ways that don’t contradict the choices above so you can stay current and learn.

Again, here’s another great list worth considering.

The Final Top Decisions

So if we look at the complete list — combining similar thoughts and weeding out the duplications — here’s what we have as a list of candidates:

• Picking a mate (could be not picking a mate as much as picking the right one.)
• Retirement.
• Selecting a career/field/Managing your career.
• Going/not going to college.
• Controlling your spending/Cultivating habits to have a perpetually high savings rate – under consuming on your income level
• Selecting/managing your investments/Determining a robust and sustainable investment strategy.
• Where to live (location and house).
• Having kids.
• Ditch low-value friends.
• Educate yourself on all things personal finance.
• Deciding to consciously measure your earlier choices against expectation, and course correct as needed. You can only improve what you can measure.
• Deciding to continue to educate yourself in ways that don’t contradict the choices above so you can stay current and learn.

So…now…which do you think are the biggest of these (in order)?

It’s a tough choice because they are so often interrelated making their singular impact difficult to measure.

Now that I’ve read everything and had time to process them, here’s my updated list:

• Picking a mate (could be not picking a mate as much as picking the right one.)
• Retirement.
• Controlling your spending/Cultivating habits to have a perpetually high savings rate – under consuming on your income level
• Selecting a career/field/Managing your career. (Going/not going to college.)
• Selecting/managing your investments/Determining a robust and sustainable investment strategy.
• Educate yourself on all things personal finance.

There’s a different order as well as an extra item in case you missed that.

Here is my reasoning for these as the top six:

• “Picking a mate.” You could do everything right (financially) in the world but if you have the wrong mate, it all could be destroyed. Divorce is terrible as you can lose half your net worth. That’s bad enough, but even worse is a spendthrift spouse who stays married to you for 50 years and depletes all of your net worth. After all, over-spending is the worst money move you can make.
• “Retirement.” It’s a multi-million dollar, 30-year decision, especially if you lump in end-of-life planning and inheritances. Hard to be bigger than that.
• “Controlling your spending.” No matter how much you make, you can spend it all, so this one has to be among the top few. In fact, you could argue that it’s #1 and I’d be hard-pressed to disagree.
• “Selecting a career/field/Managing your career.” This is obviously the “earn” category and part of the “big three” of E-S-I (with “S” right above it). The main point here is that the decision on what you will do over 40-50 working years (as well as how you grow that) can make a difference of millions of dollars (and college is a HUGE part of that equation, so I lumped it in here).
• “Selecting/managing your investments.” The third of the big three. I think investing can be the most important of the three in growing net worth (we’ve seen this in various millionaire interviews and I’ve experienced it personally), but I have it below the other two as I think they are foundational where as investing is an option only after you earn and save.
• “Educate yourself on all things personal finance.” An argument could be made that #1 through #5 are all dependent on educating yourself on money and this one is the most important. See, I told you they were all interrelated. 😉

Overall, the list is solid IMO and whether an item is #1 or #4 doesn’t really matter as much as knowing these six are very important and if you get them right you will likely find yourself very wealthy over 2-3 decades.

But what do you think? Would you rearrange this list or create an entirely different one?

Let me know your thoughts in the comments below.