Most of the articles you’ll read on personal finance will tell you what you shouldn’t do with your money. For example, don’t buy expensive latte’s or cappuccinos, don’t go out to lunch every day, etc. While I agree with the premise behind this advice those are expenses that will impact you more today or this month. My philosophy lends itself more to making good financial decisions for your future which by default will more clearly establish today’s priorities.

5 Most Important Decisions for your Financial Future

1. Budgeting: The most important aspect of personal finance is planning, you must know what is coming in and what is going out otherwise you’re just spending until the money runs out with little regard for your future. Creating a budget is essential for every aspect of financial planning as it allows you to set and track your own priorities to ensure there are funds available for the things that are important to you. For assistance in creating a basic budget, check out this article which includes tips for managing your budget.

2. Major Purchases: Making good decisions when buying a home or car sets the tone for your financial life. If you stretch yourself too thin buying a nicer car than you can afford or a more expensive home than your budget can withstand you put yourself in a monthly strain to make ends meet. That money will have to come from somewhere and most people will sacrifice savings over today’s wants which you’ll regret in the future. Bottom line, follow your budget, numbers don’t lie so spend only what you have allotted for your home and vehicle.

3. 401K Plan: With employer matching programs, the 401K is the single most useful financial instrument available to most workers. A typical company will match 50% of your contribution up to a certain point, usually 3-5% of your gross income. I recommend contributing, at the very minimum, up to the point that your employer matches. You are guaranteed a 50% return on your investment upfront plus any earnings that your 401K incurs over your working life. (401K Calculator)

4. Savings Account: As important as it is to save for retirement, it is equally important to be prepared for unexpected expenses in your day-to-day life. Whatever the emergency, if you do not have savings, you might have to use credit cards paying high interest in the future or potentially not be in a position to handle the expense at all. Many people say you should save 3-6 months of household expenses. While that may be ideal, I would encourage most people to save at least $2,000-$3,000 (more if you live in a place like NYC or LA where the cost of living is significantly higher). Your savings account needs to be kept liquid, meaning in a savings account not in stocks or mutual funds, for the simple reason of accessibility. Shop around, but I have had great experiences with the options available through Capital One 360 (formerly ING).

5. Employer Stock Purchase Plans: I believe this is one of the most untapped resources available today. This is an option not available to everyone, but typically publicly traded companies do offer some form of stock purchase plan to their employees. What makes this such an attractive tool is that you will usually get a great discount. A deduction is taken from your paycheck each period and accumulates until a set interval (typically quarterly) at which time the available funds will be used to make a purchase at whatever discount may be provided from the current price. You can look at the discount as beneficial in two ways; you automatically have earnings on the shares you buy at the lower price and/or you are able to purchase more shares for the same money due to the discounted rate. Either way you choose to look at the program, it allows you to invest in the future at a low rate plus any potential gains for as long as you choose to hold the stock.

None of these concepts are extremely complicated or even original thoughts on my part. The true bottom line is planning and preparation. Budget your income and evaluate the opportunities available to you. Maybe you decide the 401K isn’t what you want to do, but at the very least understand exactly what you are declining. There can never be too much information available to make an informed decision.

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