The 3 biggest decisions that affect your financial future

Posted April 10th, 2018

Some factors that influence your financial success are beyond your control. Statistics show those born into the top or bottom of the economic strata typically stay there. And unsurprisingly, older people tend to be wealthier than younger people.

But the decisions you make about three key areas in your life can have an impact on whether you’re able to build financial stability.

Education
People with more education tend to earn more money and accumulate more wealth. The gap between the most-educated Americans and everyone else has widened considerably in recent years. Median annual incomes for families headed by people 40 and older — when most have completed their educations — generally declined from 1989 to 2013, according to a study by economists at the Federal Reserve Bank of St. Louis. The exception was for people with graduate or professional degrees, whose median income in that time grew 4% to $116,265.

Not every degree pays off in higher earnings, and some well-paid jobs don’t require advanced degrees. If you’re considering getting more education, the U.S. Department of Labor has helpful information, including which master’s degrees actually pay off, certificate programs that lead to good jobs, and data on the fastest-growing occupations.

Marriage
People who marry and don’t divorce have about double the net worth of their peers who never wed. That means married couples typically have roughly four times the wealth of households headed by single people. Single people’s wealth typically rises slowly over time, while that of couples usually spikes after marriage.

Home Ownership
The decision that can have the biggest impact on your wealth is whether you buy a home — and hang on to it.

The wealth gap between homeowners and renters is enormous. The median net worth of the nation’s homeowners in 2013 was $195,400, compared with $5,400 for those who don’t own. Rising home values can build wealth, of course, but so does the forced savings aspect of owning a home.

Accumulating down payments and paying down mortgages will increase homeowners’ equity — and thus their wealth. Renters could build similar wealth, or even more, if they invested in the stock market the equivalent of a down payment plus any savings from renting instead of owning. Few do so.

Of course, anything that’s true on average doesn’t necessarily mean it will be true for you. Even if you’re a divorced renter without a degree, you can build wealth if you monitor spending, save regularly and invest for the future. You are the master of your own ship!