The 9 Most Important Financial Decisions Of Your Life

Key Takeaways

Important financial decisions shape your future significantly; making the wrong choice can cost you tens of thousands of euros.
Choosing a fulfilling and well-paying career is crucial; higher education often leads to significantly greater lifetime earnings.
Owning a car is a major expense with hidden costs; consider alternatives like public transportation to save money.
Selecting a financially compatible partner is vital; misaligned financial goals can lead to costly divorces and financial hardships.
Children are a major financial commitment; investing savings instead can yield substantial returns, but personal happiness matters.
Prioritize essential insurances like health, disability, & life insurance to safeguard against existential risks and ensure financial security.
Investing early and wisely can grow your wealth significantly; consider investing for your children’s future financial stability.
Deciding whether to rent or buy requires careful consideration; buying can be expensive and potentially financially burdensome.
Early retirement is challenging and requires strategic savings and investment planning; careful preparation is key.
Financial experts can provide crucial guidance and strategies to optimize your financial decisions and achieve long-term success.

Introduction

35,000—that’s how many decisions the average adult makes every single day. Most of them are small with very little to no impact on your life, while others can change your life for better or worse for years and decades into the future.

Exactly like the nine decisions that we will talk about in this article. If you choose wrong, they might cost you thousands or even hundreds of thousands of euros. One wrong decision and you might pay for it for the rest of your life. To ensure that doesn’t happen to you, let’s explore the nine most important financial decisions of your entire life.

What’s Your ‘Right’ Career Path?

Probably the most important decision of all will be your career choice. We’ve discussed it in many articles and we bring it up again: nobody ever got rich from saving alone. Yes, there are those who live a super frugal lifestyle to retire as early as possible, but that’s not our message. Focus on earning as much money as reasonably possible, not by any means necessary, but whatever is feasible for you. This way, you will live a great and happy life. Increase your income and your savings rate will follow. Choose a job that feels right for you and makes you happy, whether it’s in a big corporation, a startup, or self-employment.

Education is a crucial part of this. The Institut für Angewandte Wirtschaftsforschung compared different education paths over a lifetime. People with no degree will earn a little over €800,000 over their lifetime. Apprenticeship graduates earn almost €1 million, and those with a university degree earn over €1.4 million. However, those who achieve the Meister certification can earn almost as much as university graduates. Investing your earnings early can also significantly grow your wealth over time.

Do You Need/Want a Car?

Owning a car is probably the biggest wealth killer of all. We understand that you might need a car for work or daily life, but it’s still a significant expense, second straight after rent or mortgage.

The costs include car insurance, gas, taxes, repairs, and depreciation. For example, a BMW 318d Steptronic, which costs around €50,000, will cost you almost €1,000 every month. This includes €600 in depreciation alone. In comparison, a public transport card in Munich costs only €624 per year (in 2024). The real cost of a car is often 1.5 times higher than you think because of these hidden costs

Choosing the ‘Right’ Partner

Aside from deciding if you need a car, choosing the right partner will be one of the most important financial decisions of your life. A partner can significantly influence your financial well-being. You might want kids, or maybe not. Choose a partner whose life goals align with yours and who is willing to actively discuss financial decisions.

Divorce can be the most expensive event in your life, especially without a prenup. While we wish everyone a long and successful marriage, reality shows that one in three marriages ends in divorce after an average of 15 years.

Kids or No Kids?

Now that we’ve ruined marriage for you, let’s talk about kids. The German statistical office estimates that a child costs €763 per month until they are 18 years old. Subtracting the Kindergeld of €250, you’re left with €513 per month, which totals around €10,000 per year over 18 years.

There are also opportunity costs: investing €513 per month over 18 years could yield over €217,000. Kids are a significant financial commitment, but if you can afford them and really want them, go ahead. You don’t always have to make the best financial decisions if they bring you joy or happiness.

Protect Yourself & Your Loved Ones

To ensure everyone stays healthy and happy, you need the right insurances. Health insurance and long-term care insurance are mandatory in Germany. You can choose between public and private health insurance.

Beyond these, consider disability insurance, liability insurance, and life insurance if your family depends on you. These insurances cover existential risks that could disrupt your life, like a severe accident. Avoid unnecessary insurances like glass insurance. Focus on insurances that provide real protection and save the rest for investments.

Invest for Yourself (& Your Kids)

Earlier, we calculated that investing €500 monthly for 18 years could grow to nearly a quarter of a million euros. Don’t let your money sit in a 0% interest bank account. Invest in ETFs, real estate, or precious metals—whatever fits your goals.

Investing for retirement is crucial, but also consider investing Kindergeld for your child. If you invest €250 monthly for 18 years, your child could start life with over €100,000. This financial head start can significantly impact their future.

Rent or Buy Real Estate?

One of the largest financial decisions is whether to rent or buy real estate. Buying a home is a dream for many, especially those from cultures with a strong homeownership tradition. However, buying can often be a more expensive solution than renting.

We have articles discussing the rent versus buy debate in depth. Real estate can become an expensive nightmare if not carefully considered. Weigh the pros and cons, and make sure you’re financially prepared before deciding to buy.

Planning for (Early) Retirement

Many people aspire to retire early, influenced by the FIRE (Financial Independence, Retire Early) movement. However, retiring early is expensive. You have fewer years to save, less time for your money to grow, and a longer payout period.

This makes early retirement challenging but not impossible. It requires strategic planning and significant savings. We have articles detailing how much of your salary you need to save depending on your age and retirement goals. Planning is essential to achieving early retirement.

Seek Help from Experts

Financial decisions can be overwhelming, especially since they often intersect. Seeking help from financial experts can provide clarity and direction. Experts can help you create a clear strategy, ensuring your money is used efficiently.

Many financial products work well together, creating synergies that maximize your wealth. Don’t hesitate to seek professional advice to make informed decisions and achieve your financial goals.

Conclusion

What did we learn from this article? Planning is key. Most financial decisions are significant, life-changing events that require years of preparation. You can’t suddenly decide to buy a property or retire without prior planning.

Start planning today for the things you truly want, together with your partner if you have one. If you need help achieving your goals, book a free meeting with us. Thank you for reading, and best of luck with your financial decisions.