Personal finance involves making decisions that will impact your future – hopefully in a positive way. While you can't predict the future, a little knowledge and a comprehensive financial plan will go a long way in helping you navigate the financial road of life and make the best decisions possible.

I was speaking with a friend of mine a few weeks ago who has been working towards buying a house for some time now. He told me that he was finally in a position to move forward and planned to purchase a home within the next six months. When he told me that both he and his wife were going to liquidate their 401k retirement accounts to use as a down payment, I immediately started thinking whether this was the best decision for them.

At a time when many middle-income Americans are not adequately preparing for retirement, this decision to basically start over seemed very risky. Both my friend and I tend to be more on the analytical side so I decided to take a few minutes and put some numbers together to look at the possible future consequences of their decision.

He, 38, and his wife, 42, had approximately $100,000 in their 401k accounts. At an average 10% rate of return, this $100,000 would grow to almost $1.8 million by the time he retires at 67! Even taking a more conservative 8% rate of return would yield over $1 million. Ultimately, liquidating their 401k accounts could cost them between $1 and $2 million at retirement!

This is assuming that they did not do anything to make up for it. But how many people do you know who, after purchasing a new home, have money left over to spare? In order to make up for this potential retirement shortfall, they would have to start saving an average of $800 per month until he retires, depending on the rate of return. Over 29 years they would have to contribute almost $300,000 extra!

Are they making the best decision? Who am I to say. It basically comes down to what is important to them. But, I wanted to make sure that they went into it knowing what possible consequences their decision could have. The bottom line is that you need a personal financial plan so that you can make sure your current choices and decisions do not hinder you from reaching your future financial dreams and goals.