10 Financial Decisions You Can't Keep Putting Off


The financial decisions you make today will affect your future — often in a big way. But with every other thing you have going on, it can be hard to sit down and tackle some important financial issues. And when you do finally find the time, it's easy to get overwhelmed by all the choices and information. It's no wonder so many of us just avoid the topic altogether.

But if you're looking to build a firm financial foundation, you can't put it off. Here are 10 decisions you need to make.

1. What Is the Best Way to Pay Off Debt?

Getting rid of credit card balances, student loans, and other types of loans can put your money on the right path. However, deciding which debt to tackle first can be tricky.

There are no hard-and-fast rules; therefore, you have to take an approach that works best for you. Some financial experts recommend paying off the debt with the highest interest rate first, whereas others recommend tackling the smallest balance first. (See also: Which Debt Reduction Plan is Right for You?)

For example, if you're deciding whether to pay off a credit card or a student loan first, you might focus your energy on paying off the credit card balance since the interest rate on your card might be three or four times the rate on your student loan. But if you're deciding between two credit cards, you might pay off the card with the smallest balance first.

2. Should I Rent or Buy?

When mortgage rates are low and home prices reasonable, you might consider buying your own place. However, seriously consider whether now's the right time to purchase.

A home is one of the most expensive purchases you'll make, and you'll need a down payment plus closing costs to get your foot in the door. Additionally, as a homeowner you're responsible for routine maintenance and repairs, which can cost hundreds or thousands of dollars per year. Therefore, it's wise to have a cash reserve (funds in your account after paying mortgage-related costs) before taking this leap.

3. How Much to Spend on a House?

Even if you're pre-approved for a specific amount, this doesn't mean you should spend as much as possible on your house. Be reasonable and consider how much you can afford. Generally, mortgage payments should be no more than 28% to 30% of your gross income. But if you have monthly expenses that don't show on your credit report, such as expensive insurance premiums or daycare costs, you might keep your housing expense under the recommended percentage, or else risk becoming house poor. This rule of thumb also applies when renting a home.

4. How Should I Save for Retirement?

It doesn't matter whether you're retiring in 40 years or 20 years, exploring your options and taking advantage of different savings plans can help you prepare for the future.

For example, if your employer offers a 401(k) plan, consider contributing a percentage of your income. And if the company offers a 401(k) match, make sure you contribute the minimum to qualify for the match. This is free money that can maximize your retirement savings. In addition, look into other options, such as a traditional IRA or a Roth IRA.

5. What Is the Best Savings Account to Reach My Goals?

Whether you're saving up for a vacation or a down payment for a house, you need a savings account that will maximize your dollars. A regular savings account is a good start, but you won't earn an impressive rate. Since the average regular savings account earns less than 1.0% APY, explore other options, such as a high-yield savings account, a money market account, or a certificate of deposit. These types of savings accounts earn a much higher rate than a traditional savings account.

6. Which Credit Cards Are Right for My Wallet?

A credit card is an excellent tool for establishing credit; however, to benefit the most from your card, you need one that suits your lifestyle.

A no-frills card might work if you rarely use credit. However, if you use a credit card for most everyday purchases, and you pay off balances in full each month, you'll benefit from a rewards card. Earn cash back, points, or miles for every $1 you spend. It's a simple way to save money on future travel expenses and purchases. (See also: 5 Best Cash Rewards Credit Cards)

7. How Should I Spend My Money?

All of the other decisions on this list are big ones that you don't make very often. This one is a small one that you make every day, and for that reason, it's just as important as all the rest. The way you spend determines how much you're able to save, and whether you're able to reach long-term financial goals. Before you buy anything, ask yourself: Do I need this? It's important that you don't fall for clever sales tactics, nor buy things just because you can. If you compare prices before shopping, avoid impulse purchases, and only get what you need, you'll spend less and save more.

8. How Much Life Insurance to Buy?

A whole life insurance policy never expires, but you'll pay higher premiums. To keep premiums affordable, purchase a term life policy.

It doesn't matter if you're single or the breadwinner, you need adequate coverage in the event of your untimely death. There are no concrete rules regarding how much coverage to obtain. But you should acquire enough coverage to pay your funeral and burial, pay off your debts, and provide long-term financial support to your dependents.

And while you're purchasing life insurance, it doesn't hurt to review your health insurance, homeowner's insurance, renter's insurance, or disability insurance on a yearly or bi-yearly basis to ensure that you're adequately covered.

9. Is It Time to Downsize?

No one wants to give up their dream home. But as the economy continues to shift, you may find yourself with less income than before, and it may be difficult to maintain your house or car payment.

Periodically review your budget to assess what's coming in and what's going out. If you're using your emergency fund to pay living expenses and you're unable to contribute to your retirement, or if your house payment is more than 30% of your gross income, moving into a cheaper house can improve your budget and increase disposable (or savable!) income.

10. Do I Need a Financial Advisor?

A financial advisor or planner can assist in every aspect of personal finance from retirement planning to paying off debt. No matter your goal, your planner will outline a plan to help you achieve financial success, plus review your progress and make suggestions for years to come.

Are there other financials decision we should all consider making that you'd like to add to this list? Let me know in the comments below.

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Guest's picture

Excellent advice! Some of these points really made me reflect on the financial issues I am trying to sweep under the rug. Might as well deal with them head on!