What decisions can have the most impact on your life?
How much education you get. Education is expensive and the cost continues to rise. Deciding on what type of education you pursue beyond high school – whether it’s no additional schooling, an Associate’s Degree, Bachelor’s Degree, or specialty training program – can have major implications for your financial future. Aspects to consider:
- Availability of funding – Do you have a 529 account, UTMA, or other investment account to help pay for the costs or will you need to take out student loans? Can you work part-time to fund your way?
- Potential income – Based on your course of study, does its cost align with potential future earnings? Is there opportunity for earnings growth once you’ve established your career?
- Need for additional education – Are you expected to pursue a graduate or professional degree after your initial training? What are the upkeep costs for professional development?
Whether you marry (and stay married). There’s no better time to start practicing open conversations about financial commitments than when you’re about to make a lifetime commitment. Aspects to consider:
- Actual wedding cost – 2020 will either be a new trend for small, intimate gatherings or a blip in the timeline of increasingly extravagant weddings. The amount spent on a wedding is up to the couple but going into debt for a party is a difficult way to start marriage.
- Tax benefits/complications – In general, there seem to be beneficial rules for married couples when it comes to taxes & investments but not always. If you have children and are contemplating a second marriage, sometimes getting remarried can derail tax filings and/or Social Security benefits.
- Divorce is expensive – There’s no sugar-coating it. Costs of lawyers, court fees, splitting assets, and determining after-divorce income for each partner is expensive in terms of time, money, and emotional exhaustion.
How and where you live. There will always be a cost to live anywhere; but how you decide to live can offer more or less flexibility in your financial budget. Aspects to consider:
- Own or rent – Do you envision owning your own apartment in the city or a farmhouse in the country? Owning leads to other upkeep costs but offers stability and creative freedom, while renting protects against unexpected lump sum needs but your lease renewal isn’t guaranteed.
- Live alone or with a roommate (or renter) – A source of additional income, or a way to afford the mortgage on your dream home, can include extra housemates but takes away from privacy.
- Cost of living in a particular area – Living in high-cost areas can mean dedicating a higher percentage of your budget to living expenses but often offers different opportunities for entertainment and community.
Whether you have kids. This major life decision is deeply personal and should not be made solely based on finances; however, knowing that having kids drastically changes your financial picture is important to recognize. Aspects to consider:
- Dual income continuation – Will both partners continue to work full-time? If not, how much will day care cost and can all parties still be listed on the worker’s health insurance? Have you saved for expenses during a parental leave, including loss of income and hospital bills?
- Tax reporting – You can deduct certain expenses for children on your tax return so make sure to keep track of care costs and take advantage of tax deferral savings such as HSAs or FSAs.
- Expenses in general – Care, diapers, wipes, clothing, summer camp, future college costs, food, insurance (health, car), and other costs add up quickly.
Of course, none of these life-altering decisions should be made in a void and only incorporate financial impacts because there are so many intangible benefits that can’t be measured in dollars. Acknowledging the intricacies of these decisions and the potential positive or negative financial implications is an important part of making the right decision for you.