Do You Understand the Impacts of Your Financial Decisions?

by Miranda Marquit · 0 comments

Too often, we think of our financial decisions as being made in a vacuum. We figure that an investment decision just affects us in terms of whether the investment wins or loses. Or that a decision to fund a 529 account means that a child has a better chance of going through school without student loans.

However, the financial decisions you make now have a very real impact on other areas of your life, and can even influence the outcome of other financial goals. It’s important to understand that your financial decisions are interrelated, and that you should make an effort to see the big picture, rather than making your financial plans in isolation.

Wide Ranging Impact of Financial Decisions

Selling a stock might seem like a good idea, but have you thought about the tax implications? Don’t forget that you have to worry about long term and short term capital gains. For that matter, you need to consider your future tax situation when you buy assets. Can you reduce your long term tax liability by using tax deferred (or even tax free) investment accounts to purchase investments?

Also, consider how much you can really afford to set aside for you child’s education. While you might want to ensure that your child doesn’t have student loans, what is the long term cost? Are you taking money away from your retirement to fund your child’s education?

And if you make that huge unnecessary purchase now, with debt, what will it cost you in the long run? By the time you pay interest, and consider how much you could have earned if you had invested the money, you might find that you are falling behind. What do you have to show for it?

It’s important to carefully consider your financial decisions, and determine whether or not they make sense in terms of your overall goals. Really think about the situation, and what matters most to you. What do you want to accomplish with your money? If you make certain decisions now, what will it mean later?

Prioritize Your Financial Goals

As you make financial decisions, do so with an eye toward the future, and toward your over arching financial goals. In order to incorporate all of your goals into a financial plan to guide you through the future, you need to prioritize. What are the most important goals you have? Do you want to retire with a certain amount of money? Pay off high interest debt? If these are your main goals, it’s a good idea to make sure they are taken care of first. Figure out how much money you need to commit to make it happen. You can then commit lesser amounts to less important goals.

Also, don’t forget to include the long term tax consequences. A tax professional or financial planning professional can help you create a play that works for you, and that results in a greater chance of overall success. View your finances holistically, and you’ll be more likely to meet more of your financial goals.

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