11 Important Financial Decisions You Should Be Thinking About

By Todd Kunsman

Financial Independence

Published on

Updated on

There is no doubt that pretty much daily, you are making financial decisions that can impact your life.

Of course, many of these choices could be very minor, while others are major decisions that may take some time to reach a conclusion. 

However, financial decision making is something you will learn to master as you become more financially savvy.

And many early choices you make are not always easy to tell what impact they may have on your future. 

Below is a list of the best decisions when it comes to your money and the positive influence it can have on your financial health in the future. 

What Are The Important Basic Financial Decisions? 

When it comes to decisions you make about your finances, I think there are two separate categories to think about.

The first are basic financial decisions, which are things you want to think about and put in place sooner rather than later.

Each of these will have an affect on your current and future financial health. The earlier you start the better off you’ll be!

But even if you get a later start than others, the important thing is that you get started now. 

1. Building an Emergency Fund

If you have read any piece of personal finance content, then it’s been hammered home the importance of building an emergency fund.

The sooner you have one ready, the more you can focus your income on other wealth building investments. 

Ideally, an emergency fund is to cover unexpected expenses or repairs. I also like to look at a lifeguard if something were to happen to your main source of income, like getting laid off. Then you know you can cover your monthly expenses for the time-being.

Most experts and financial writers recommend 3-6 months of expenses saved. But me being a bit extreme and always remember when I was jobless for eight months, I’ve saved close to a year worth.

But what you decided is your personal choice, but it can save you when you weren’t expecting to need it.

Note: I like building an emergency fund in an online bank, as it separates your money from your main bank where you might be tempted to spend. And online banks tend to have better interest rates and features. Check out either CIT Bank’s Savings Builder or Ally Bank.

2. Investing for Retirement

The sooner you start investing for retirement, the better your golden years will be. While you cannot predict how long you will live, you need to start financially preparing yourself. 

Many people figure they can worry about retirement saving for later. But the reality is, later sneaks up fast and it is much harder to make up the time missed on compound interest. 

While more money invested will be better for you later, not everyone can afford to sock away thousands of dollars. But just get started and consistently invest!

As you go along, you can start contributing more or slowly increase your contributions. But one of the best financial decisions you can start is saving for retirement. 

Recommended: Want to stay on track with your retirement? Use Blooom’s free analyzer to uncover hidden fees, get portfolio recommendations, and more. Get started with your 401k or IRA here

3. Create A Debt Payoff Strategy

If you have high interest credit card debt or student loan debt, you want to immediately start figuring a payoff strategy.

The last thing you want to do is be stuck in a vicious cycle of debt because of interest rates, plus you just are throwing more money away.

For your debt, you can look at the debt snowball or debt avalanche methods. Both strategies have advantages and disadvantages, but can help you tackle your debt much faster. 

With credit cards, you want to avoid just paying the minimum monthly balance. Put as much as possible towards the balance each month if you cannot pay it off. 

And for student loans, if your debt is insanely high consider refinancing or consolidating to help you with the payments. Trying using the free service from Credible, which helps you find the best rates.

4. Improving Your Credit History 

Your credit score and history follow you throughout your life. Whether you like that or not, it’s an inevitable part of our lives.

And one of the best financial decisions you can make is actively monitoring it and improving your score if it is low. 

I won’t get too deep into the weeds here, but your credit score affects if you’ll be approved for loans, the kind of rates you get, if you’ll be approved for credit cards, and more.

And lower scores can cost you thousands in extra interest!

But beyond maintaining a good credit score, you should be monitoring for fraud or identity theft.

I’ve personally dealt with this myself (thank you Equifax hack!), but I was prepared and stopped it. If I was not previously proactive, that could have wrecked my credit and caused some serious financial disaster. 

Recommended: Create a free account with Credit Sesame, Credit Karma, or both to monitor your score, get alerts, and more for free — without it impacting your score negatively. If you need more help fixing your score, check out CreditRepair.com

5. Track Spending & Net Worth

Honestly, I personally thought tracking your spending and net worth was a waste of time.

I mean, monitoring everything you spend? Spreadsheets? Nah, I’m good.

But this quickly led me to living paycheck to paycheck because I didn’t have a clue as to what my exact expenses were. 

The sooner you know your expenses and income, the better your financial decisions will be.

When you actually see what’s left over or how much items are costing, you become a bit more conscious of how you prioritize your money. Least, it should make you more aware. 

This doesn’t need to be overly complicated either. You can make a simple spreadsheet and use an app like Personal Capital, which pulls all your finances into one data view for free.

6. Continuing Your Financial Literacy 

The more you learn about your finances earlier on, the better you’ll most likely be with your money. Naturally, that should be a no-brainer. 

But as you get older and priorities shift, you should be continuing to improve your financial literacy. Whether that’s knowledge about retirement, building wealth further, investing, or general money management. 

The easiest ways to do that is read these personal finance books and others, listen to podcasts, and consult with a financial planner or advisor if you need further help. 

Other Financial Decisions to Figure Out

7. What Further Education Will You Pursue

People with more education tend to earn more money and increase their wealth. That doesn’t always hold true, but it’s something to consider when planning your future finances.

And saving for college is getting harder as costs rise.

But you have other options besides that like trade schools, online courses, and speciality degrees (think coding, marketing, data science). 

These financial decisions are important because it impacts the career path you may be choosing and your future income. You can always pivot and switch careers, but it can be more challenging as you get older. 

8. Will You Own A Home

One of the largest financial decisions you’ll have to make is whether you plan on owning a home. Not everyone will be interested in owning one, many will rent and that is a perfectly fine choice. 

But it is something you need to think about because of the costs of ownership. Everything from the down payment, to getting a mortgage, property taxes, and to maintenance of the home. 

Plus, where and how long will you live there are factors to think about too.

However, as you pay down your mortgage you start building homeowner equity, which goes towards your net worth and wealth.

Many consider a home an asset, but others consider it a liability. I can’t tell you how to approach homeownership, but it’s an important part of financial decision making. 

9. Going to Marry or Not

Ignoring the costs of having a wedding (if you are not just going to the courthouse), how do you feel about marriage?

According to the CDC, the divorce rate in the United States is 3.2 per 1,000 people. And the rate is actually going down, which is a good thing because divorce can be expensive!

While you don’t want to just look at marriage as a financial asset, it can help you and your partner financially as well as build more wealth.

You are combining assets and incomes (generally), which can put you and your spouse in great financial health. 

Again, money and wealth should not be your main drivers for getting married. But, it is still something you need to consider to prepare and have a plan. 

10. Having A Child (Or Multiple Children)

Whether you want to have a child or children can be a complicated answer. And it’s a decision that can change over time as well. 

But as you reach further into adulthood, it is certainly something you want to ponder. And if you are married or have a significant other, it’s something you want to talk about so you are both on the same page. 

According to The Street, “By the time that newborn baby turns age 18, U.S. families will have spent an average of $233,610 on their child – and that is before college tuition bills start factoring in to the household budget.”

That does not mean you will spend that much, but that’s a general average.

So planning for your potential family’s finances is something to start considering and thinking about. It will help make better financial decisions now, so you are more prepared 

11. What Your Retirement Plans May Be

Even if you are in your twenties, you still want to be thinking about potential retirement plans. Certainly these could alter if getting married and start a family, as priorities will shift.

But the early you are thinking about retirement, the better prepared you will be. The best thing you have on your side at that age is time.

This allows your money to compound further and gives space to make mistakes, but still have time to recover. 

And even if you’re not in your 20s anymore (ahem, me!), you should think about your goals when you reach retirement age.

Things like when to be investing more money, what your lifestyle will be and how much you need to survive, altering your portfolio to be more conservative as you near retirement, etc. 

What is the best way to make financial decisions?

The best way to make financial decisions is to actually make a plan based around your financial goals. When you have something attainable that you can work towards, you’ll be able to better prioritize how you handle your money. 

When you have goals, you start to budget, find ways to save money, research information before making moves, and genuinely are more calculated with your money choices. 

However, you have to want it badly enough in order to stick to your financial plan. Without that mindset, you may still find yourself not sticking to your plan or goals. 

Bad Financial Decisions 

During your lifetime there will be plenty of financial decisions you want to avoid completely. These are the areas to keep in mind and ensure to not fall into these traps.

And don’t worry, if you have made some of these mistakes you can still correct them and avoid future financial disasters. 

  • Not paying your debt and letting it go to collections
  • Buying too much car or too much house
  • Not investing in your retirement, even if it’s only a little to start
  • Financing purchases instead of saving for it first
  • Constantly carrying a credit card balance
  • Ignoring your credit reports and scores
  • Co-signing a loan for someone else (never do that)
  • Allowing others to influence you without your own research

How do you recover from a bad financial decision?

Making bad financial decisions is very common, so don’t freak out or dwell on it. Instead, take a breather and follow these steps:

  • Stay calm and gather your composure
  • Reverse the mistake if possible
  • Consider your options and start planning
  • Don’t let your emotions guide you
  • Mistakes are also the best lessons
  • Cut your losses and move forward
  • Protect yourself with future decisions
What other good financial decisions do you think people should make sooner than later? Did you make any bad financial decisions in the past? How did you overcome them? Let me know in the comments below!