When people talk about wanting to take charge of more things in their life, they usually refer to their finances. Controlling your income and expenses and learning how and where to invest are just some of the skills you would have to master to become better at this.
While there are many decisions you’re unsure about, there are some financial decisions that are too expensive not to take. What does this mean? It means that the benefits outweigh the negative sides and costs so much that they’ve become no-brainers. Here are ten such decisions.
#1. Owning Your Home
Rent payments are inferior to mortgage payments in every single respect. Even though both provide you with the right to live in your home, with rent payments, you’re not building equity in your home. Also, you’ll never own the place, no matter how long you pay rent.
Second, owning a home comes with cost stability. After all, the cost of rent can go up, but you can avoid that with a fixed-rate mortgage.
Also, when you own a house, you can work toward improving its energy efficiency. Renovating a rental property (even if you get a rent deduction) is something that many tenants just wouldn’t be comfortable with.
#2. Owning a Car
Owning a car provides you with higher convenience and mobility. While some may claim public transportation cheaper, this is not the whole story. After all, a trip will be much cheaper if you find the right carpooling crew or have a habit of driving your family. Splitting the gas cost and not paying multiple tickets offsets the cost.
Then, by living further away from work, you could save money on rent. You can also go for more efficient grocery runs, saving you a fortune. Also, having your transportation is invaluable in moments of crisis.
#3. Paying Off High-interest Debt
Paying off interest puts you at a direct financial loss and allows you to avoid debt traps. Debt calculators give you a rough estimate of your monthly credit payments. While this can be a figure that you could agree to, the problem is that these loans rarely have a fixed-rate interest.
Remember that while the money you borrow is the money you get to use (net neutral value), the interest is a direct financial loss that puts additional stress on your budget. By paying off high-interest debt, you’ll free a lot of your capital that you’ll get to use for more important things.
#4. Taking an Inexpensive Risky Investment
What if you could return in time and buy $100 worth of Bitcoin? How much money would you have today?
So, what if you went back in time, spent $100 on Bitcoin, and, through some complex butterfly effect, the cost of Bitcoin never increased? Well… nothing; you would still lose just $100.
Risk management is all about this and why it’s financially reckless not to put at least a small portion of your investment fund toward something risky and lucrative. All you have to do is find the crypto with the highest potential and invest the amount you can afford to lose/freeze for a while. The risk is low, and the payoff is incredible.
#5. Filling Your Retirement Fund
Financial independence is the name of the game. The thing is that an individual retirement fund helps you maintain your lifestyle quality even when you’re no longer making income. Remember that people are living longer than ever, and you must understand that sustaining yourself through retirement might be challenging.
Ideally, you would start as early as possible. Most people don’t reach their peak income until their late 30s; however, you can always adjust your payments to your income. Every dollar counts, and the sooner you start making these payments, the better.
#6. Tracking Your Expenses
The most important thing you must do (if you had to do just one thing from this list, it should be this one) is track your expenses. It doesn’t matter how much money you’re making; unless you start tracking your expenses, you won’t know where all your money goes.
They say that you can never outrun a bad diet, well… you can’t outearn a bad spending habit either. The thing is that you have so many tools at your disposal to help track your expenses. Why wouldn’t you get the most out of it? These apps also gamify your money-management efforts, which makes tracking expenses even simpler to pull off.
#7. Diversifying Your Investments
If you knew how to invest, you would just put all your money toward it. This is the ethical principle known as utilitarianism. The big flaw with utilitarianism is that it rests on a completely unrealistic principle that you know the future outcomes of events or your decisions.
In reality, this is never the case. You never know which of your investments will have good or bad outcomes. So, to protect your assets and always come out ahead, you would have to diversify your investments. The best way is to split your investments across different asset classes (preferably with low correlation).
#8. Starting an Emergency Fund
Many people are in debt due to their inability to cover an emergency fund. To solve the problem, they apply for a payday loan (sometimes with an APR of 300-500%), which sets them on the path of the debt spiral.
The best way to avoid this is to start an emergency fund. Simply set aside 3-6 months’ worth of your expenses. While this sounds too much, you can create this fund over several years or use some of the money you’ve received by selling an asset. Overall, this is a high priority, and you should treat it as such.
#9. Having The Right Insurance Plans
Insurance provides you with a financial disaster under unforeseen events. It serves a similar purpose as having an emergency fund, with the significant difference that you can’t take money out of it whenever you need it. This can be both good and bad, depending on the circumstances. You must also understand that you should have an emergency fund and the right insurance plan.
You want to protect your income, cover healthcare expenses, and have your family taken care of in the most unfortunate outcomes. Remember that there are all sorts of insurance, from travel to auto insurance. You need as many types as you can comfortably afford.
#10. Estate Planning
You’re not immortal, and what happens to your assets after you’re gone may completely change the lives and livelihood of your family. Therefore, you must handle this long before you’re gone.
The key thing you need to understand is that planning an estate early doesn’t mean you’re afraid of your own mortality or pessimistic. It just means you’re ready to take action and want to keep everything firmly in your hands. Caring for people who will be left behind is the ultimate act of love and financial responsibility.
Some Financial Decisions Are Too Good to Pass On
Every single decision on this list is either life-saving or so inexpensive that it won’t put stress on your budget. Also, remember that this will start a chain reaction, which will soon cleanse your finances, make you more financially literate, and make your financial life more predictable. This way, you win every time.