How We Are Our Own Saboteurs

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Ultimately we control our destiny, meaning we have some say in the decisions that affect our personal finance in our adult lives. Yet the three biggest life decisions we make may be sabotaging our ultimate financial goal, saving enough and being financially independent come retirement. Those three big choices include where to live or settle down, who to marry, and what profession to choose.

Where to Live

Many of us choose to stay put; we remain close to where we grew up, our family and friends. There are definitely some benefits to remaining in the city where we've spent the majority of our lives in, such as familiarity with the city, where to shop, eat, visit, and work. Other benefits include potentially low cost baby sitting if grandparents are willing and able to help care for young children. Living near relatives may also be cost effective for DIY home projects, holiday gatherings, or transportation needs.

Yet, choosing where we live, whether we stay near home or move out of state, can negatively affect our personal finances if the cost of living in the chosen city is extremely high. Take Los Angeles or New York for example. Living as an independent adult costs much more in these cities in the long run than choosing to live in a city where the cost of living is half the price. Even though it may mean moving out of our comfort zone, choosing to move to a less expensive area may be more financially sound.

Making a choice on whether to rent or purchase property becomes important in an expensive town. Renters have more freedom on when they can move, they aren't tied down by a mortgage and can make good financial decisions based on rent prices. Renting may not be a terrific long-term financial strategy, but could work in the short term if mobility is important.

Who to Marry

Love is blind, so they say. Unless your date wears his FICO on his sleeve and “I’m a saver” is stamped on his forehead, you may be entering into uncharted spending territory. Many of us plunge into a relationship head over heels, only to find out later that our beloved can't balance his checkbook to save his life. Few first dates reveal an individual's personal finance. Discussing personal finances should be on the agenda the moment a relationship becomes serious.

Finding out after you’re married that your spouse has an affinity for fancy sports cars and expensive habits are hard to change (though not impossible). If you find your spouse is definitely leaning more toward the spender's side, there are ways to rein in their expensive habits, like sitting down and budgeting out monthly income and expenses.Strict budgeting and open discussions on spending behaviors and goal setting can accomplish this task.

What Profession

Some professions are almost always guaranteed a high paying salary, usually in the ball park of six figures: doctors, lawyers, financial analysts. Some professions are almost always guaranteed a low paying salary, traditionally under $50,000 annually: teaching, non-profit organizations, retail positions.

Though the lower salary professions may be more rewarding, the amount you have each pay period towards saving or retirement is lower. Saving 15% annually of $150,000 equates to an annual savings of $22,500 versus 15% annually of $50,000 which equals $7,500. This may affect your total net worth down the line. A thrifty lawyer over a 30 year period can potentially save $675,000, add 4% interest to this amount and it comes to almost $16 million! A just as thrifty teacher, whose max salary caps out at $50,000 may only be able to put away $180,000 over the course of 30 years. Add in 4% compound interest and the retirement amount is $5 million. That's a difference of $11 million dollars! (Thanks, Bankrate for your nifty calculators.)

Does this mean everyone should become a lawyer? Of course not. Some research has shown that the lower paying salaried folks are usually better at saving money than the higher salaried folks are. So maybe there is more true compensation for less compensation. Given that lawyers, doctors, financial analysts must look like they are wealthy, they may be more apt to spend more money on clothes, cars, and homes than those that haven't as strong a need to "look the part" so to speak. Teachers, in particular, are more likely to live within their means than doctors or lawyers. In the long run, they may be more capable of saving 15% of their income.

Summary

We may or may not have control over some aspects of our lives such as who we fall in love with, however we can adjust our personal finances to better fit our current choices. Starting with weighing the pros and cons of big decisions is always helpful in determining what best fits your financial goals.