The discipline of "saving for a rainy day” has been on the decline for many years as our immediate gratification society has taken over. We want what we want, and we want it now. Modern technology allows us to buy things at the click of a button, without a second thought. Often times, these decisions to gain short-term gratification hinder our ability to reach our long-term goals.
There is a constant conflict going on inside of our heads: do I make my decisions based on what will help me now or help me later? So, how can we create a plan that fulfills both our long-term and short-term goals while ensuring a healthy, prosperous financial future?
Needs vs. Wants
One of the most challenging aspects of creating a sound financial plan is analyzing your needs vs. your wants. Most of us learn the concept of "needs vs. wants" when we are kids, but we often take it for granted as adults. We have to be honest with ourselves before making a purchase and ask: "Is this something that I really need right now?" or "Will this price be worth the value I get out of this product or service in the long-run?" Obviously, everyone makes a non-essential purchase now and then, but it is important to make sure we are spending wisely and monitoring our budgets when we choose to indulge our consumer impulses.
One of the easiest ways to analyze your spending is by simply examining your bank and credit card statements to see where your money is going. By doing this, you can assess what you need to cut back on, or what you can loosen up on in your budget. Although you may not always be able to acquire what you want right away, if you budget effectively you can reach each of your goals down the road.
Short-Term vs. Long-Term
Identifying and categorizing your goals lays the foundation for developing a successful financial plan. Determining the time frame for each of your goals allows you to pinpoint what you need to save today for a brighter future. This also helps you establish which goals are most important to reach, and which may be a waste of time to put in your budget.
There are three different types of financial goals: short, intermediate, and long-term. An article published by learnmoney.org, an excellent resource for financial literacy, gives examples of these three categories of goals:
- Saving ten percent of income every month (short-term)
- Saving to buy a hybrid car in two years (intermediate)
- Paying off student loans within six years of graduation (long-term)
Old School vs. New School
The message society and the media often sends us today is to buy what we want now and pay for it later. As the use of credit cards has increased rapidly, especially among younger generations, it has become much easier to lose track of spending and buy things that aren't needed. I call this the "New School" type of thinking, where immediate gratification is prioritized and long-term budgeting is put on the back-burner.
My philosophy takes more of an "Old School" approach to budgeting for your financial future. I believe that it is essential to maintain a focus on short and long-term financial goals in every purchase decision or investment you make. Another aspect of this approach is finding a balance. Financial writer Nancy Anderson discussed this topic in an article in Forbes. She writes:
"In my experience, people tend to fall in one of two camps with regard to their finances. The first type lives for today, attempting to enjoy life to the fullest now while sacrificing his or her future. The second focuses on saving for the long term, sacrificing for their future, but often at the expense of enjoying life today."
I believe finding a balance between living for today and saving for tomorrow is integral to everyone's financial health and happiness. By assessing your needs and wants and identifying and organizing your financial goals, you can live a more prosperous life free from the stresses of debt and uncontrolled spending. The Old School philosophy of "saving it for a rainy day" is essential to staying financially fit down the road.
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