The Long-Term Perspective on Personal Finance
Personal financial success is often linked to how we perform in the long term, and nothing exemplifies that more than how effective we are in forfeiting many of our short-term gains. The fundamental question boils down to whether you are really up to the task of sacrificing your comforts in the short term to ensure you reach your long-term objectives.
Acquiring the habit of stashing savings away for retirement
If you are intent on saving for future needs, it necessarily implies that there will be less cash available for domestic needs. In some ways that could be a good idea because one learns to get by with lower income without inflating one’s demands. At the same time, it is also an undeniable fact that the money that you want to set aside for retirement could just as well help you make good lifestyle choices (organic foods, eco-green innovations) or sustain your favorite charity.
These are not bad choices by themselves, but you have taken a considered decision to save up funds to sustain yourself when the income dips and you have fewer resources to fend for your basic needs in a future that may be some decades away.
The challenge of keeping your assets liquid and accessible
The pessimist would argue that parking hard-earned savings in liquid assets such as high yielding online savings plans and Bank Certificates of Deposit won’t earn you half as much as more aggressive income-oriented growth stocks. But what this argument hides is the undeniable fact that high growth stocks extract a steeper price which is the risk involved in placing substantial funds that could turn bad and jeopardize a long-term investment plan.
Planning savings for the long term is fine as long as they do not compromise the accessibility of the same funds if and when you need that money in an emergency. The smarter and more sensible choice would be to keep at least a portion of savings in liquid instruments that satisfy short terms needs. At least it saves you the need to turn to credit cards and payday loans to fuel immediate cash demands that can’t be avoided.
How insurance helps you meet life’s emergencies without compromising your savings
It is an accepted fact that it is well-nigh impossible to meet all or most of life’s insatiable appetite for funds without a good insurance policy or two in your back pocket. We list a few essential policies that could become your most powerful safeguard against financial chaos:
1. The Homeowner’s insurance policy for protecting your most valuable asset and belongings.
2. The Life insurance policy that guarantees your family a source of income and livelihood when you are no longer a part of the scenery.
3. Disability insurance that takes care of your needs in the short term and long term when you are physically incapable of generating wealth and income.
4. Long-term health care insurance that keeps the home fires burning when your health lets you down and otherwise makes you a burden on your family’s limited resources.
5. Health insurance that is vital to sustain and overcome the high cost of healthcare.
6. Dental insurance that provides coverage and cost savings in a highly expensive area that impacts your overall health.
7. Auto insurance which is a statutory obligation ensuring that your life, your vehicle’s longevity and lives of others are protected in serious road accidents that would otherwise smother you in debt and damages.
Naysayers would argue that you stand to lose thousands of dollars protecting yourself from incidents that have a small likelihood of happening, but consider the downside if the inevitable happens and you are landed with hundreds of thousands of dollars in expenses and commitments that your family budget cannot hope to provide for. Imagine the devastation a car crash or a sudden illness or long-term disability could wreck on your personal finance if you were cut off from institutional support. Then insurance becomes a necessity and ceases to be a luxury.
The maintenance, upgrade and renovation routine
If we buy the best assets that money can buy to make our lives cozier and more comfortable it also becomes our obligation to service the assets and keep them functioning in top condition so that they last our lifetime (or beyond). If you maintain your car in roadworthy condition, you are priming the vehicle to extract maximum mileage and save on fuel and unwarranted expenses. Big ticket items all need regular upkeep and maintenance to last longer and contribute their might to maintaining your comfortable lifestyle.
Replacing items of value to enhance their worth and to save costs
Maintenance, repairs, and renovation can take you up to a certain point, not beyond that, only because most items come with a predetermined expiration date. Replacements are a part of life, and the astute householder plans funds to meet all such eventualities. If maintenance is a recurring expense, replacement is a long-term goal that can’t be avoided. If for example, you are grappling with a decade’s old HVAC system that is shooting up the energy bills significantly, paying over $6,000 for a replacement could be viewed as a financial investment in improved technology that yields healthy returns in the long term through reduced energy bills.
Paying off debt intelligently
Finance is an inseparable part of life; it’s the via-media for accumulating all that you deem to be essential to living (home, car, appliances and many other things) and getting the opportunity to pay off the debt in installments with interest spread out over a longer term. But the fact remains that you are taking these loans under certain assumptions – you are assuming that you will live long enough, you will continue to grow your income and savings, and you will remain hale and hearty until retirement, all of which are merely bets that may or may not pay off. One way of preventing yourself from falling into the pit of financial uncertainty is to repay loans to the extent that is possible and accelerate repayment in all other instances. Keeping ahead of debt payments ensure that sooner than later you become free of debt and avail opportunities to channel investments into profitable areas.
Deciding and executing significant ticket expenses
Much depends on how successful we are in rationalizing financial decision making. For example is it appropriate to spend considerable time and accumulating student loan debt if the degree isn’t going to make a substantial alteration in your income or skill sets? Is repairing a better option than replacement? Is replacement inevitable and considered a cost-saving measure in the longer term? Would you instead rent a home than buy one till your finances improve? Would you go for flexible rates of interest on the home loan or would you settle for a fixed rate anticipating a rate spurt in the near future? Finding the right answers could impact your finances and lifestyle tremendously.
Prioritizing your needs with a long-term perspective
It’s natural that you want to accomplish a lot by the time you retire but it is also challenging to have all your needs addressed. It is, therefore, necessary to prioritize your needs in such a manner that you get closer to achieving your goals with the resources at your command. Prioritizing is the best way to ensure success; the best way of ensuring you get to see the light at the end of the tunnel.
As much as we find ourselves mired in the routine of the present, it pays rich dividends not to lose sight of a long-term perspective on personal finances. Whether it is a corpus of funds you target for retirement day or investing in a smart mixture of growth-oriented stocks and index funds to boost your sagging portfolio, keeping the long-term goal in mind is your way of ensuring that years from now you will be rewarding yourself for your hard work and frugality.