Key Takeaways
- When you have to make a financial decision that could have a long term effect on your financial future, you want to have a path and plan in place.
- Some of the big decisions you want to be clear about are taking on student debt, buying a house, a car, or any other expensive item, and looking at tax deductible and tax deferred options.
- Seeking counsel on putting a path and plan together from successful individuals and professionals versus asking your peers or going it alone, will ensure you make sound financial decisions.
I met this young woman recently who told me she has $240,000 of student debt and only makes $45,000 a year. You don’t have to do the math to figure out there’s no way she will pay this debt off in ten years. It’s possible, but it will be extremely difficult, and not without some sort of support in terms of perhaps living with mom and dad, or trying to subsidize everything.
This example was a bad mistake in terms of student loans for school, but there are other financial situations in our lives where we want to avoid these financial pitfalls. When these big financial decisions come up in life, you want to have a path and a plan in place because there are sometimes short term and long term ramifications to your decisions.
What are some examples of areas you want to have a clearly defined path and plan? Buying a house is a great one. If you can only afford a $250,000 house, but you end up buying a $450,000 house, that can have huge financial consequences for you. Or perhaps you buy a new car, maybe even a luxury model, and your monthly payments are $300-$500 a month. A used car could have cost you $150-$200 a month, but now you’re looking at six year payments on auto loans that can be very expensive for you.
Another area that is often overlooked, is not taking advantage, long term, of anything that is tax deductible or tax deferred, such as a 401(k) plan and putting money away. It can make a huge difference in terms of money you save and have ready for the future, say, 25 years out, where you can potentially double your money. If you don’t take advantage of these tax options, you are leaving money on the table, money that can really make or break your financial future.
How do you make sure you avoid making some of these ruinous financial decisions? Seek counsel, but be sure you aren’t looking for advice from your friends, because in most cases, it’s the blind leading the blind. You want to seek counsel from someone who is competent. This could be a parent, grandparent, family member or mentor you have had, provided they have successfully managed their own financial decisions. It could be a professional, such as a financial advisor, wealth manager, accountant, or other professional who deals with these big decisions daily and can help you make sound financial decisions.
It’s really important to have a path and a plan in place for these big financial decisions, otherwise you could end up in the horrible position of having huge debt, or living a very tough lifestyle to make up for that one big mistake.
Until next time, enjoy!
Gary