I have said before that there are only a handful of financial decisions that truly move the dial over a person’s lifetime. The reality is that if you get those decisions right, most of your financial outcomes will take care of themselves.
That is why I originally wrote Investopoly and have now completely rewritten it as Wealth by Design. My goal was to create a rules-based operating system that helps people make better financial decisions and avoid costly mistakes.
A listener recently asked me to name those key financial decisions, which is an excellent question. After reflecting on it, I realised it would make a valuable blog. So, I have listed and discussed those decisions below.
Decision one: your choice of partner
This might strike some readers as an odd place to start a finance blog, but I am convinced it is the most important financial decision you will make. In fact, it might be the most important decision you will make, full stop.
If you and your spouse or life partner are aligned when it comes to spending, borrowing, investing and saving, everything else becomes dramatically easier. You will save more, invest more consistently and avoid the stop-start behaviour that destroys many wealth accumulation plans.
Money is consistently cited in Australian research as one of the leading causes of relationship conflict. Therefore, alignment here protects both your balance sheet and your relationship.
In most successful households I have observed over nearly three decades of advising clients, one person usually takes the lead on financial decisions. However, that only works well when they are properly supported by their partner.
Support does not mean passively agreeing with every decision. It can mean debating options, asking hard questions and sometimes disagreeing. But once a decision has been made, both partners must be fully committed to it. That means they share responsibility for the outcome, whether it is good or bad, without blame or resentment.
That distinction matters. A partner who interrogates a decision before it is made is an asset. A partner who keeps questioning it every time markets wobble is a problematic, because they will pressure you to abandon sound strategies at precisely the wrong time.
There is also a blunter point. If you marry the right person, someone with whom you have a genuine and enduring connection, the probability of divorce falls substantially.
Divorce is one of the most financially destructive events that can happen to you. Legal costs for a contested settlement can easily exceed $100,000 per person, but that is usually the smaller cost. The real damage comes from dividing one asset pool into two, then funding two households from the same combined income, often while being forced to sell assets at an inconvenient time.
People who divorce in their 40s or 50s can struggle to ever recover financially to where they otherwise would have been.
Decision two: your chosen career
Your career choice is probably the second most important financial decision you will make.
The financial logic is obvious. Your lifetime earnings are the engine that funds everything else. The difference between a career that earns $100,000 per year and one that earns $250,000 per year, compounded over a 35-year working life, is measured in millions of dollars of investable surplus.
But the more interesting point is enjoyment, because enjoyment drives earnings more than most people appreciate.
You will spend roughly 80,000 hours of your life working. People who genuinely enjoy their work tend to get better at it, stay in it longer, take on more responsibility and earn more as a result. People who hate their work tend to plateau, burn out or make expensive mid-career changes.
There is a quote I like that captures this idea well:
“A master in the art of living draws no sharp distinction between his work and his play, his labour and his leisure… He simply pursues his vision of excellence through whatever he is doing and leaves others to determine whether he is working or playing. To himself he always seems to be doing both.” – L. P. Jacks
Author, Jim Collins offers a practical framework for thinking about career choice. Draw a Venn diagram with three intersecting circles. The first circle is what you are naturally good at – what you have a talent for. The second is what you are genuinely passionate about. The third is what you can make a good living from. Your ideal career sits at the intersection of all three.
The reality is that if you choose a job you hate, especially one that does not pay well, it is very hard to get ahead financially, no matter how disciplined you are.
But if you find a career that you are passionate about, that you have genuine talent for and that pays well, it can change not only your financial position but your whole life.
Decision three: your spending-saving philosophy
The third key decision is your philosophy when it comes to spending and saving.
Note that I said philosophy, not budget.
Managing cash flow is the most important purely financial decision most people make. Your approach to money is usually formed in your 20s, and sometimes even earlier, whether consciously or not.
At one end of the spectrum, some people live entirely for today. They spend whatever they can get their hands on, enjoy the present as much as possible and give little thought to tomorrow.
At the other end, some people are complete misers. They deny themselves almost every small luxury throughout their life, simply so they can save and invest more.
Both extremes fail, just in different ways.
The spender arrives at 60 with very little to show for decades of income. The miser arrives at 60 with plenty of money, but also a lifetime of joyless deprivation behind them. That rather defeats the purpose.
The answer sits somewhere in the middle, but it is not a fixed point.
You need the discipline to embrace delayed gratification at the right times, particularly early in your working life when compounding has the most time to work. But you also need to give yourself permission to spend more and enjoy an improved standard of living once you have made the financial sacrifices required to fund your long-term goals.
Knowing when to save hard and when to loosen up is the real skill.
The practical application of this philosophy is automation.
Building strong cash flow disciplines from the moment you start earning is incredibly important. Saving and investing should happen automatically, before you can spend the money.
I will write more about automating your savings engine in a few weeks, because I regard it as the single most important financial habit you can put in place.
Decision four: a handful of big tactical calls
The fourth category covers the practical, tactical financial decisions you make throughout life.
Individually, each one might look like just another transaction. But five decisions do most of the heavy lifting.
- The first property you buy
I think the first property you buy is the most important property you will ever buy.
If you buy an investment-grade property in the right market, ideally at or just before the beginning of a growth cycle, and you do so as soon as practical after you start working, the compounding effect can be extraordinary.
The capital growth in the first five years of ownership can dramatically improve your financial position compared to someone who waits. Get the right asset at the right point in the cycle and time will do a lot of the work for you. Get it wrong and you can easily lose a decade.
- Where you live
Your home is usually viewed as a lifestyle decision, and of course it is. But it is also a financial base.
If you buy a quality family home in a well-located area and hold it for several decades, it can generate substantial wealth almost by accident. Importantly, that wealth is generally free of capital gains tax.
That creates a valuable fallback position. If everything else goes wrong, a well-chosen home that has compounded for 25 years or more can still help fund a comfortable retirement through downsizing.
Therefore, how quickly you can upgrade or leapfrog into your long-term family home is a genuinely strategic decision. It is not merely a lifestyle choice.
- How and where your super is invested
Superannuation is the most neglected large asset most Australians own.
Reducing fees and maximising returns over an investment horizon that can span four or more decades can produce an enormous difference in your final balance.
A 1% per annum difference in net returns, compounded over 40 years, can increase a retirement balance by around 30%. That can equate to hundreds of thousands of dollars, often determined by a decision many people make once, by default, in their early 20s.
- How you invest outside super
What you invest in, whether you borrow to invest, how regularly you invest, and how long you hold those investments are all decisions that compound for decades.
The methodology you commit to at the start largely determines the result.
As I have written before, once you make the right initial decision, the rest is mostly a matter of giving the strategy enough time to work. Often, that means waiting a decade or two for the results to fully materialise.
- Whether you seek professional advice
I am not suggesting that everyone needs ongoing financial advice for their whole life.
But given the outsized impact of the decisions above, paying for high-quality, independent (financial, property, tax, or legal) advice at the point of making them can be cheap insurance against an expensive mistake.
A few thousand dollars of advice that helps you avoid a $200,000 mistake, or capture a $200,000 opportunity, may be one of the best investments you ever make.
It is conceivable that most people will need professional, independent advice at some point in their life, even if only episodically.
The good news in all of this
Notice what is not on this list: Picking the best ETF. Timing the share market. Finding the next Nvidia.
The financial media devotes most of its attention to decisions that barely matter, while the decisions that really move the dial receive almost none.
That should be liberating.
You do not need to make hundreds of good financial decisions during your life. You need to get a handful of big ones right: who you marry, what career you pursue, how you manage cash flow, and a small number of major tactical decisions along the way.
Each good decision compounds on the last.
If you are unhappy with your current financial position, the answer is rarely to make more decisions. It is to make the few decisions that matter, deliberately and well.
