What Is the Most Important Financial Decision You’ll Ever Make?

Wouldn’t it be just great if you could ask yourself a question like the one in the title of today’s post and get all the information and the answer you need to make a great financial decision? I guess first you need to know what questions to ask to find out the answer. That seems to be much more difficult than it appears and if you were to ask ten people that big question, you might get ten different answers. And they all may be right! Life is so confusing and so intimidating when you first start out on its highway, isn’t it?

Chess board representing the most important financial decision you’ll ever make

If you actually ask yourself the right questions, then the answers come a lot more quickly and easily. The problem, however, is that sometimes we don’t ask the right questions or even worse, we don’t ask any questions at all and just let life take us down the highway all by itself. That’s dangerous and like riding in a car and traveling at high speed without any brakes! So let’s try to answer it: “What is the most important financial decision you’ll ever make?

Bet Seven or Eleven?

No, the answer to the big question isn’t like throwing the dice on a craps table. Oh that it were so simple as a choice between just “A” or “B”. It’s way more complex.

But strangely enough there may be some A or B decisions that you will make in your life and no, it’s not picking from a fast food menu or playing the old TV Match Game Show rounds either.

Your Education and Your Career Choice?

Perhaps the kind of education you get in a college, trade school, or some other way to learn and earn is the most important decision you will ever make? Certainly it does help to have an idea about what you want to do as early on as possible and then to apply your aptitudes, interests, and the like in making those skills work for you.

You are going to spend a long time trying to earn a living and build financial wealth and independence, so it really does matter how you start and how you finish. You may change your course more than once in life; each time you do, however, it may mean one step forward and two steps back as the saying goes. That’s why the decisions are so important and can alter your life.

Where and How You Will Live?

Is whether you own or rent the most important financial decision you’ll ever make? The decision you make as to where you live and what you will live in can have a huge impact on your wealth. In fact, it may have the biggest impact on it, period. That means not just buying a home, but being able to keep it and have it appreciate as the years move on.

Here’s a fact to think about: The wealth factor between homeowners and renters in the U.S. is enormous! The net worth of a homeowner is actually over 40 times greater than that of a renter in statistics as recent as 2019. The median net worth of the nation’s homeowners in 2019 was $254,900 compared with $6,290 for those who don’t own, according to a Federal Reserve Board survey. Rising home values can build wealth, of course, but so does the forced savings aspect of owning a home.

Homeownership serves as a form of forced savings. Every time you pay your mortgage, you’re contributing to your net worth by increasing the equity you have in your home. Renters don’t get to do that.

Owning a home

So is owning a home the biggest financial decision you will ever make? Is it the most important?

It might be. The impact of home equity is part of why Gallup reports that Americans picked real estate as the best long-term investment you can make. According to this year’s survey, 41% of Americans chose real estate over stocks, savings accounts, gold, and bonds.

There are great opportunities available for those planning to buy a home. The housing market has made a full recovery, and all-time low interest rates are giving homebuyers a big boost in purchasing power. If you’re ready, buying a home can set you up to increase your net worth and create a safety net for your family’s future. So you aren’t wrong if you think owning a home is the most important financial decision that you will ever make!

Whether to Marry and Have Kids?

You may be of the opinion that getting married is the biggest and most important decision you will ever make. In many ways, it is the way to fulfill your life and also get rich too! After all, two incomes are better than one in 2021 right? Two people dealing with problems solves them faster and better and two people working together gets you to the finish line and financial security faster than just one working the problems does every time. Or does it?

It’s true that people who marry and don’t divorce have about double the net worth of their peers who never wed, according to economists and scientists. That means married couples typically have roughly four times the wealth of households headed by single people. Single people’s wealth typically rises slowly over time, while that of couples usually spikes up immediately after marriage. But don’t make the mistake in thinking that getting hitched is always a definite way to get rich. Just ask the millions who have regretted thinking that way.

Divorce risk

Not so fast. Today, almost 45% of all marriages end in divorce. If you eventually decide you’ve made a mistake by getting married, divorce is likely going to destroy your wealth.

Put aside the emotional trauma and the dozens of emotional scars of a divorce for a minute that you (and any kids if they are involved) will experience and you will find that the net worth of people who divorce starts to plunge before the split, during the split, and after the split.

Believe it or not, divorced men and women are worse off financially than the never-marrieds.

I personally can testify that divorce can set your finances back to the stone age. When I went through my divorce back in the 1990’s, it probably cost me hundreds of thousands of dollars in lost money from settling the financial divisions and supporting basically two households during the child support and the alimony years.

Final Thoughts

I guess what I am saying here today is that there is no one most important decision you make that will determine your financial outcome. They are all important. There are financial decisions made all the time that affect your future and you must always try to make smart decisions because if you don’t, the setbacks can mean devastation. The best decisions are educated ones.

You can learn from experience or you can learn from another source, the first and often the best are from you parents. One thing you do learn as you grow older is this: Your parents are smarter then you give them credit for when you are 10, 16, or even 21. They will try to influence your decisions and for good reasons. They learned their lessons after they left the nest and are now trying to prevent you from making the same mistakes that you might make. Funny thing is, when you get to be a parent, you will do exactly the same thing it seems.

What do you think are the most important financial decisions you will ever make? Have you regretted any decisions about your finances? What advice do you give others about such matters?

2 Comments

  1. Lots of wisdom in this post Gary. Its almost ironic that some of the most important decisions can go either way. Take marriage. I got very lucky by marrying one of my best friends, someone that was just a buddy for years and then became my love interest. But in many other cases marriage is a financial disaster that derails years of progress. And to me that’s a decision that is mostly luck. I didn’t make a smart choice so much as circumstances and providence took care of me. The other girls I dated had disaster written all over them, but I couldn’t see it back then. Much as having kids turn out well or not so well is not something you can really control. I’ve been very lucky while some of my friends, far better people in my opinion, have been through divorce and kids self destructing. I know I just plain got lucky, I’m simply not that good at life. I always appreciate your perspective, you’ve taken a hard knock or two and it has given you experience I haven’t had. Its good of you to share that with others.

    1. Thanks so much for your comments. When it comes to picking a partner in life there is a degree of luck that goes along with the relationship. I married the person I thought was going to be my perfect soulmate but things change over a period of time and people change. The important way to avoid having a relationship fail is to constantly communicate and make sure that you’re on the same page and I guess we didn’t have that. The good news is that I think this time around I’m getting it right. Life is full of hard knocks and tough decisions, but you can overcome them if you pay close attention to the details. I enjoy your perspective too, Steveark, so keep up the good work.

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