5 Decisions With Unexpected Financial Consequences


When we think about big, long-term financial consequences, we assume there's a big money decision behind each one: saving up for a down payment on a house, buying Apple during its IPO, taking out student loans, or hiring Bernie Madoff as your investment advisor, for example. (See also How to Improve Your Decision-Making Skills)

And while those big decisions certainly will have an effect on your financial future, many small and non-money-related decisions you make every day may have an even larger impact. This is the Butterfly Effect — the theory that small, seemingly insignificant actions can have far-reaching consequences. You may already be familiar with the Latte Factor — the phenomenon described by David Bach, wherein small purchases, such as your morning latte, add up to large amounts over time. In a similar fashion, small choices and habits made early on can add up to major financial consequences over time.

Here are five decisions you may be making right now than can seriously affect your finances for years to come.

1. How You Deal With Stress

There are two ways that this choice can affect your finances. First, depending on how you deal with stress, you could be priming yourself to reap serious financial rewards or consequences. (See also: Easy Ways to Get Calm)

For instance, if you unwind after a stressful day by smoking a cigarette while enjoying a bacon cheeseburger, you are spending money on vices that could be better spent. For example, a pack-a-day cigarette habit costs a smoker $2,555 per year, and $201,994 over thirty years if you factor in compound interest. Poor food choices can cost up to $4,879 per year and $385,725 over thirty years (with compound interest).

These numbers don't even factor in the health costs of these sorts of habits, which can lead to illness, lost productivity, high medical bills, and even death. No single cigarette or French fry is such a horrendous decision, but forming the habit over a lifetime can seriously derail your finances. (See also: Breaking Bad Habits)

In addition, the way you deal with stress can also affect your ability to make good decisions. Recent research has shown that people only have so much bandwidth for making decisions — which is why talking on a cell phone while driving makes you a worse driver. In particular, living with the constant stress of financial worry means that you have less cognitive ability to make decisions. As Emily Badger of The Atlantic put it, "this explains, for example, why poor people who aren't good with money might also struggle to be good parents. The two problems aren't unconnected." (See also: Poverty Can Make You Stupid)

While the research has shown that the kind of long-term, cognitive-ability-sapping financial stress that those living in poverty experience is not exactly the same as more temporary stress, it does seem fair to assume that living with any kind of stress over a long period of time can deplete your ability to make good choices. Choosing smart stress-reduction techniques can help you to keep your faculties sharp.

2. How Well You Negotiate

Many of us are uncomfortable with negotiation. Women in particular are reluctant to come across as pushy or overbearing for fear of looking bad and potentially losing opportunities. But since most people don't have to negotiate more than a handful of times in a career, it's not that big a deal if it's not in your skill set, right?


According to a recent study by George Mason University and Temple University, your ability to negotiate can have a significant impact on your earning power over your lifetime. In particular, being able to negotiate a higher starting salary means that you will compound your annual raises to a big difference in your overall earnings. The study found that those individuals who chose to negotiate their starting salary increased that initial salary by an average of $5,000. (See also: How to Negotiate Higher Pay at Your Next Job)

The researchers concluded that assuming a 5% annual pay increase and a 40-year career, the negotiator with a $55,000 starting salary would earn an additional $600,000+ over their career compared to their non-negotiating co-worker who accepted $50,000 to start. (Although, to be fair, both the 5% annual raise and the 40-year career in the same field seem to be generous assumptions).

However, it's clearly important to get over your discomfort with negotiation so you can reap the benefits. (See also: Negotiating With Confidence)

3. Who You Fall in Love With

It sounds awfully mercenary to talk about money and love in the same breath, but it is important to consider the financial consequences of your choice of a life partner. Despite what John Lennon promised us, love is not all you need. Falling in love is easy, but staying in love and happily married is much harder. That means marrying couples ought to consider their long-term compatibility — or they may find themselves facing a costly divorce down the road. (See also: Difficult Conversations You Have to Have With Your Spouse)

Even if you avoid divorce, incompatible money attitudes can limit your financial future — not to mention be the cause of some knock-down-drag-out fights. If you and your spouse are not on the same page regarding saving, investing, and spending, then you cannot commit to a shared plan for your finances. That makes it difficult (or impossible) to achieve your financial goals.

That doesn't mean you should be asking dates for their bank balances before considering a future with them, but it does mean you have to work on your communication skills early and often to ensure that money won't be the death of your love — and love won't be the death of your financial security.

4. How You Show Affection

I was once at a relative's Christmas celebration where the grandchildren were so overwhelmed with gifts that they actually started crying because they didn't want to open any more.

This family had fallen victim to a common emotional trap: showing affection by showering gifts on loved ones. After all, it feels great to buy gifts for someone you love and to see them enjoy the presents you picked out.

But showing affection by buying gifts is a great way for all of you to lose out. Not only were these grandparents spending money on toys that became playroom clutter and eventual Goodwill donations, but they lost out on the time value of the money that they spent on those gifts. Basically, by spending that money on piles and piles of presents, these grandparents lose out on the possibility of growing the money by investing (or even just saving) it. (See also: Free Ways to Show you Care)

That said, not even the biggest Grinch in the world would claim that it's a better idea to invest all your money rather than buying gifts. Instead, I recommend Mary Hunt's suggestion in Raising Financially Confident Kids: for every gift-giving occasion grandparents can give each child "one nice outfit, one special toy, and a deposit into [an] investment account."

If it's not grandchildren that you tend to overspend on gifts for, you can still revisit your gift-giving strategy and the way you show your love. Instead of buying presents, figure out ways to make gifts or create experiences that you know your friends and family will appreciate. Not only will those types of gifts last longer than the gadgets you might buy, but you will also give yourself the gift of better finances. (See also: Ultimate Gift Guide)

5. What You Keep in Your Wallet

Imagine you run into the grocery store on your way home from work to pick up a gallon of milk. Even though you know better than to shop while hungry, it's been a long time since lunch and everything you pass looks delicious. How likely are you to go ahead and fill up the cart?

Your answer probably depends on what you carry in your wallet. If all you've got is a $20 bill, there's a limit to the hunger-induced purchases you can make. But if your debit or credit card is burning a hole in your wallet, then the sky is the delicious limit.

You might be wondering how this could possibly affect your future finances. There is the most obvious issue of failing to pay off your credit card balance at the end of the month. If that's the case, then you end up paying interest on your sudden yen for grocery store donuts, making the $3.00 for a dozen deal much less of a steal.

But even if you are in the habit of paying off your credit card each month or using a debit card for purchases, you may still be hindering your future finances. Studies have shown that using plastic for purchases causes you to spend more, because you don't feel the same pain of payment when you swipe a card as you do when you count out bills.

If this were a one-time impulse, then no harm, no foul. However, what you habitually carry in your wallet will determine just how much and how often you decouple the pain of payment from the act of buying.

Instead of only carrying cards in your wallet, get in the habit of paying cash. This seemingly small change will save you a great deal of money. That's because switching to a cash-only wallet will force you to be a mindful spender. You will have to think about what you truly need or want before making a purchase, and you will have to think about how much money you have and spend throughout the month before taking out cash. (See also: Simple Ways to Stop Impulse Buying)

Small Decisions Matter

If you want to grow wealth, retire, become debt-free, or otherwise reach a major financial goal, then it pays to examine how every facet of your life affects your money, no matter how small. Because little things can add up to big consequences.

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Guest's picture

Yes, these are good tips on how "little" things can add up financially. I especially like the point of dealing with stress. When I get stressed I sometimes get the urge to buy something to take the edge off. It could be something as innocent as a peach Snapple, or it could be something big like the PlayStation 4 I've had my eye on. In any case, learning to deal with our emotions plays a big part in how our financial situation will turn out in the long run.