What is an example of external influences affecting personal finance?

Government tax decisions are a prime example of external influences affecting personal finance because they directly impact an individual's financial situation. Tax rates can determine how much income is taken from a person's earnings, influencing their net pay and disposable income. Changes in tax legislation, such as deductions, credits, or overall tax rates, can alter financial plans and affect decisions on saving, investing, and spending. For instance, an increase in income tax could lead to a decrease in available cash for day-to-day expenses, while a tax credit might provide a welcome boost to a person's budget.

The other options illustrate personal preferences or choices that are generally influenced by individual tastes and circumstances rather than external factors. While clothing brands and recreational activities can impact personal finance decisions, they stem from personal choice and lifestyle rather than legislation or government policies. Similarly, personal friendships may influence spending habits but are rooted in social dynamics rather than broader economic or political influences. Thus, government tax decisions distinctly represent a substantial external factor that shapes personal finance.