Author: Christy Bieber | May 22, 2019
You can't afford to put off these key financial decisions
For many Americans, financial constraints impact major life decisions. In fact, when money is tight we often end up putting off things we'd love to do if only we had a little more spare cash.
While sometimes delayed gratification is indeed the right approach, it's also important not to procrastinate too much when it comes to some money moves as doing so could only make accomplishing financial goals more difficult and expensive down the line.
The important thing when living in limbo because of your finances is to make a decision on key issues and then take action. If you're not sure where to start, here's some advice as it relates to 12 financial decisions that Americans tend to put off.
1. Paying off debt
Making a debt payoff plan should be at the top of your to-do list and is a financial decision you definitely don't want to put off. Paying interest on debt can take up a huge portion of your paycheck, making it hard to live on a budget or save for the future.
While you should be aggressive about paying borrowed money back right away, there is a caveat. While paying off high interest consumer debt, including credit cards, is essential, other types of debts such as home mortgage debt and student loan debt don't necessarily need to be repaid early.
If your mortgage or student loan interest rate is below the rate of return you could likely get from investing, you're better off paying the loan on schedule and investing your cash -- especially if you get a tax break for your student loan interest or mortgage interest.
As for your other debts, make a list of your total balances, allocate cash for extra payments and start either paying extra to the debt with the smallest balance or the debt with the highest interest rate. Then, once the first debt you're focusing on is paid off, move on to the next one until you're debt free.
2. Living on a budget
Actually sitting down and making a budget can be a challenge, so it's not a surprise many Americans put this process off and just spend without a plan. And once you've got a budget, tracking expenses to make sure you're living on it is another hassle.
The problem is, if you put off making a budget, you're likely to continue to misuse your cash instead of allocating it to the things that add the most value. You need to make a budget today, track your spending to see whether you can stick to it, and budget in some cash for savings and debt repayment.
A solid budget is the key to a successful financial life, because without a budget, it can be too hard to make sure you're saving and investing enough to create financial security now and in the future.
3. Buying a home
Homeownership isn't for everyone. It makes no sense to buy a home if you don't plan to stay put for several years, if the market is in a bubble in your area, or if you don't have a down payment saved up and will end up with an expensive mortgage.
But ultimately, buying a home can be a great way to boost your net worth, as long as you're financially ready to do so. Homeowners tend to have significantly more wealth than renters, largely because homeownership is a form of forced savings as you build equity with your mortgage payment. Plus, you get to benefit from a rise in real estate prices -- which isn't guaranteed over the short-term but which consistently happens over the long-term in most areas.
To make sure you're ready to buy a home, start saving for a down payment. Once you've got 20% down, an emergency fund, and can afford a home without spending more than 30% of your household income on housing payments, you should start seriously thinking about becoming an owner instead of a renter.
4. Buying a car
For most Americans, having a car is a necessity. Unfortunately, most Americans assume a car has to come with a car loan.
Car loans have reached record highs, and eat up hundreds of dollars in monthly income. If you constantly borrow for a car, your monthly payment makes it more difficult to devote enough cash to retirement savings or other goals.
The best approach is to drive your car for as long as possible and save up for a late-model used car that reliably holds its value and that's still under warranty. When you can afford to pay cash for a car, you can save the cost of your "monthly car payments" for the next vehicle.
If you drive each car until it no longer makes financial sense, you'll have more than enough saved for a new vehicle well before it's time to buy one. Then you can divert the money from the car payment you'd otherwise have had into other financial goals. To achieve this, though, you should start saving ASAP for your next automobile.
5. Getting married
Many Americans are putting off marriage -- and some aren't getting married at all. Finances are a big reason for delayed marriage, as young people burdened with student loans often feel they can't afford to tie the knot.
While delaying marriage until your finances are in order may seem like it makes sense, there are some financial benefits to marriage that shouldn't be overlooked. For starters, couples can often live more cheaply than singles -- and while you don't have to be married to cohabitate, that marriage certificate does provide important financial protections in case you separate.
When you're married you can also become eligible for your spouse's Social Security benefits and can sometimes get health insurance through a spouse's employer if yours doesn't offer it.
Because of the many financial benefits, research is clear that married couples grow their wealth more than singles and tend to have higher net worths. While getting richer definitely isn't a good reason to get married -- especially as divorce can lead to financial disaster -- you should carefully consider the financial benefits of tying the knot before you decide you can't do so because of the state of your finances.
6. Having a child
No one is ever 100% ready for the impact of a child -- either personally or financially. But while you don't have to wait until the time is perfect to add a new bundle of joy to your life, you do need to have some basic financial tasks checked off your list before you bring a baby into the world.
Before having a baby, make sure you have health insurance to cover the costs of labor and delivery and to ensure your son or daughter is covered from day one in case of complications.
You also need a plan to afford diapers and childcare -- whether this comes in the form of a parent giving up work or paying a professional. Many people don't have paid maternity leave, so having enough budgeted to cover the costs of time off can also be very important.
Of course, you don't want to wait forever to have a baby either, as this could increase the chances you'll have difficulty conceiving and will need expensive fertility treatments. If having a child someday is important to you, now is the time you should start saving for this milestone so you're financially ready when you decide it's time to become a parent.
7. Buying a pet
Pets aren't as expensive as kids, but there are still costs to inviting a furry companion into your life.
You'll need to be prepared for routine vet care, the cost of food, the time and expense of potty training if you adopt a puppy or kitten, and a host of other expenses ranging from licensing to replacing those shoes your new friend damaged.
Having a pet-care fund is a good idea to make sure you don't have to choose between your financial stability and having a pet that's properly provided for. You can also look into pet insurance, but be certain you get comprehensive coverage and understand policy limits so you'll know what to expect. And remember, many pet insurance policies still leave you responsible for routine costs unless you add an optional wellness plan.
8. Taking a trip
Taking a vacation can help you enjoy life and may even improve your career performance if going away helps you avoid burnout. But it can also be a big expense that leaves you in debt.
You shouldn't try to fund your vacation at the last minute or go into debt to see the world. Instead, it's a good idea to have a dedicated vacation fund where you save some spare cash for your trips. Having money set aside for vacations not only ensures you can add some adventure to your life, but it also means you'll be prepared if you have to travel to a friend or family member's wedding or to other important out-of-state events.
You may also want to help defray the costs of your vacations by using credit cards that give you points to redeem for miles or hotel rooms. Just remember, even if your flight or hotel is free, you'll still need to have some money saved to spend at your destination.
9. Going back to school
Going back to school to invest in yourself can be a wise thing to do with your cash. Earning a degree or certification could make you more employable and could boost your income.
Unfortunately, going back to school can also be very expensive. If you don't want to get stuck paying student loans until you die, research scholarship opportunities or look into finding a job with employers that help fund the cost of your education. You should also save up as much money as you can to pay for essentials besides tuition, such as books and transportation.
If you do have to borrow, try to stick with federal student loans and avoid private loans that often have higher interest rates and fewer borrower protections. And make sure you're only borrowing for a degree that will pay off. Research the school and the subject you're studying to see if a degree will actually increase your earning power enough to make paying for the program worth it.
10. Saving six months living expenses in an emergency fund
If you don't have an emergency fund, you're continually living on the precipice of financial disaster. After all, emergencies happen and some expenses you have to cover, even if you don't have the cash. That can lead to a lot of debt if you aren't prepared.
You should save at least a small emergency fund before paying extra to debt repayment, as otherwise you could end up right back in debt as soon as an unexpected expense crops up. Once you've paid down high interest consumer debt, saving up a fund with three to six months of living expenses should be a top financial priority.
An emergency fund can save you from serious disaster, such as foreclosure or repossession in the event of a job loss. It can ensure you're able to get medical care you need or cover other big unexpected essential costs. It also gives you peace of mind. So while it may seem daunting to save enough to pay for several months of living expenses, you shouldn't delay in getting started.
11. Opening a retirement investment account
Retirement can seem very far away, so you may be tempted to put off saving for it when you have pressing expenses today. Sadly, the longer you wait to save, the more you have to invest each month to build a nest egg -- and the harder it becomes.
You have to save a substantial nest egg for retirement because Social Security alone can't support you. And you get tax breaks for savings each year if you invest in a 401(k) or IRA-- which you lose if you don't take advantage of them.
Start saving as much as possible for retirement today because this expenditure is absolutely essential to make sure you don't spend your golden years worrying about money.
12. Buying comprehensive insurance coverage
Buying insurance is kind of boring, but you need to have the right policies in place to avoid financial disaster. You don't want to end up losing everything you own because your home is damaged -- and not be able to afford to replace your possessions because you don't have renters or homeowners insurance. You also can't afford to get sued for causing an accident without insurance, or to get seriously sick without health insurance.
To make sure you're protected, check your coverages for home, auto, and health. You'll want to ensure your deductible is affordable, that your coverage limits are high enough to protect your assets, and that you're covered for all different kinds of calamities -- such as an accident you cause that damages your own car or a flood that destroys your home.
If you have anyone depending on you, buying life insurance is also a good idea so your family isn't left in dire straits if something happens to you. Buying insurance isn't something you can put off, because once something happens, it will be too late to get covered.
Stop procrastinating to get your financial life in order
Now you know some of the top financial decisions Americans put off -- and have some tips to make these tough choices for yourself. So make a few key decisions today and start working on the financial goals that matter most to you. You'll be a lot happier once you have a roadmap for money management and know where you want your dollars to go.
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