It is important to prepare for the major financial decisions in your life since most life events will have a direct impact on your finances. Whether you are getting married, buying your first house or starting a new job, you will be worried about how this will affect your finances. As you approach each of these major life events, it is important to consider the financial consequences of each decision. Below are some hard choices you have to make about your life to succeed financially:
1. What career you follow
We all want wealth, but how do we achieve it? It starts with a successful career that relies on your skills and talents. Your career is the engine of your wealth. The more you earn, the easier things should be financially. You have a very important financial asset that many people tend to overlook: yourself. For most of your life, you focus on converting your talent and skills into money. You will most likely increase your human capital by studying further or getting a promotion. This will show itself in the form of an increase in your income.
2. Whether you marry the right person
People who say they are experiencing stress in their relationship mention finances as the number one reason. Fully disclosing your financial situation to your partner before getting married is necessary, regardless of how uncomfortable it may be. This is the time to mention outstanding debts, loans, income sources, investments or other financial assets or obligations. They say the fastest way to lose your wealth is to get a divorce, and a slower way is to marry someone with bad financial habits.
3. The cost of your house relative to your income
One way to waste a handsome salary: buy a house you cannot afford. If there is one number that drives your financial life, it is your fixed living expenses. We are talking here about regularly recurring expenses that are unavoidable when you own a house, such as bond payments, water and electricity costs, renovations and home insurance. The lower your fixed living costs relative to your income, the easier it is to save.
4. Whether you have children or not
Raising a child is not cheap or easy. You must have a solid financial plan in place to ensure that you can give your child the best life possible. You can compare raising a child to a second housing bond. This is because raising a child is a long-term commitment that could last for years until they become financially independent. Research on South African middle-income households shows that it costs around R90 000 a year to raise a child.
5. What car you drive
Buying a car is one of the largest financial decisions one can make. When it comes to buying yourself the dream car you deserve, the best advice is to buy the car that fits your finances.
6. When do you start saving
Warren Buffet wrote, “Don’t save what is left after spending; spend what is left after saving. “ How much you spend determines your savings rate. If you are young, time is one of your greatest friends in wealth accumulation. You will never get more in the future. Simple calculations show that a 23-year old who invests R6 000 every year for 10 years at an annual return of 8%, will have R93 873. If after those 10 years, she stops contributing and does nothing until age 60; her investment will have grown to R749 863. The person who waits until they are 33 to begin investing will need to save R7 950 for 27 years, to have around R749 863 at age 60.
7. Whether you do it yourself or appoint a financial adviser.
You do not need a financial adviser if you have self-control, financial planning knowledge and self-knowledge. Given that our lives are so full of other activities, you are likely to need assistance with financial planning from those who are qualified to provide it. Financial advisers are in the business of investor behaviour modification. The investor’s chief problem and even his worst enemy, Benjamin Graham said, is likely to be himself. We all have emotions and biases that affect our decision-making, so we need a voice of reason to assist us to act rationally