Your financial position is a reflection of the financial decisions which you have made over the course of your life. Rarely is your financial position determined by one single decision but it can happen such as in the case of a lotto ticket or an inheritance. In most cases a poor financial position is caused by making a series of poor decisions over a long period of time.
Some examples of this would include borrowing for items that depreciate over time (car, household appliances etc), eating at restaurants every night, or going overseas every year where you cannot afford it. Many of these decisions are caused by people wanting to live tomorrow’s lifestyle today or “affluenza” as it is commonly referred to in the media.
For all of us there are points in our lives where we need to make what I refer to as “game changer” financial decisions, you get these ones wrong and the financial consequences can at best be very painful at worst devastating. When making these “game changer” or “fork in road decisions” it is important where possible to “get it right”.
The “game changers” are
- Buying a home – For most of us buying a home is the biggest financial decision that we make and following this purchase we generally owe the most of amount of money we ever will also. Ensuring you can make these repayments over the loan period and also have enough left over to enjoy life is a delicate balance that can be the best or worst financial decision you ever make.
- Having children – Whilst children are the greatest assets in our lives they are also the most expensive and time consuming. It is estimated that to feed, clothe and nurture a new born baby today from birth to 18 costs over$600,000.00 AUD. Having 3 children I know the costs of this first hand and in the last 7 days alone we have purchased 3 shoes $200, 3 swimming lessons $360 as well as the usual day to day living costs. Children don’t go away and supporting your children is an obligation that will continue even when the initial relationship breaks down.
- Further study – The decision to undertake further study after leaving school is a decision that many teenagers are now making in an attempt to provide them with an advantage in the competitive job market. In the good old days going to University and other tertiary institutions was free, however nowadays further study can be an expensive exercise, so choose carefully. As an example the HECS fees for a 5 year university course are now around $15,000 per annum or $75,000 at the end of the course. Having a substantial debt at the end of your course can be like a noose around your neck if you don’t actually like it. In addition to this interest is payable on your HECS debt at a rate of CPI approximately 2.6 % per annum. The cost of study now means that you have to ensure that you make the right “study” decision at the outset , as otherwise it could prove to be a very expensive mistake.
- The long term relationship– For many people finding a compatible partner is a barometer by which they measure their success or happiness in life. Making the decision to get married or live as a de facto couple has significant financial implications, and at the outset the financial gain is significant as in most instances you halve your outgoings. However life is not that simple and “finances” are one of the main reasons for relationship breakdowns particularly when you have a “spender” and a ‘saver” as a couple.
To avoid any nasty surprises I recommend that you discuss the financial side of relationship before taking the plunge into de facto or married life. It is worth noting that the older you get the more complicated this issue becomes with marriage breakdowns, children, ex’s etc so choose wisely the first time it will save you a lot of grief later on.
- The relationship breakdown – An unfortunate consequence of the world in which we live is that 40% of long term relationships fail and when they do your financial position will be less than what it was when you were together as a couple. The only advice I can you here is the earlier you break up the better off you will be as you will have more time to recover from the setback. Having a relationship breakdown later in life has the potential to seriously undermine your financial well being.
These are the major ‘game changers” you need to be careful of when proceeding through life. In the event that you make a “mess” of one these decisions and the financial consequences can be significant. The good news is that there are plenty of people to guide you through these decisions and remember your financial future is a reflection of the decisions in which you make over time.
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