Making Long-Term Smart Financial Decisions
Every single day we make countless financial plans. They range from seemingly trivial (should I call a taxi or use the bus) to the staggering: how much is my credit card debt, and how much should I settle this month?
Apparently, our lives are packed with financial decisions that we should make instinctively, without a second thought. And while thinking out of the blue may turn out to be the right gut feeling, sometimes we end up making unwise financial decisions.
Every few weeks or so, it’s okay to sit back and take a hard look at your monetary decisions. Were they sensible? Were they generous?
How you make sensible financial decisions plays a big role in shaping your life. Do you consider yourself capable of making long-term smart financial decisions? If you answered yes, then you’ll get frequent visits to the local ATM.
But if the answer is a resounding no, then you’re not alone. And many people are this minute scratching their heads wondering where the next dollar is going to come from.
No Rocket Science
The good news is that making long-term smart financial decisions is not rocket science. One day a client visited our office and told us he wanted to make a huge withdrawal from his retirement account to expand his backyard barbecue space. Not a sound decision, right?
We doubted this client had taken a hard look at the idea of expanding his backyard because if he had, he would have let the money remain in the retirement account. And no one would complain about the size of his backyard barbecue space in the first place.
Don’t make a big decision fast. It may cost you.
Before your significant other urges you to apply for that variable annuity or expensive mortgage, it might be a good idea to consult as widely as you can. Things like mortgages are good, but you should have a stable income to help you pay it off, so you don’t run into problems later.
Here are ideas to help you make long-term smart financial decisions:
- Start by Saving
No savings come easy. Many of us don’t have emergency funds to set aside. This is despite experts recommending that we put aside three to six months’ worth of our living expenses in a savings account.
In a world that prizes get-rich-quick scams, many people are averse to thinking long-term when it comes to saving and building lasting wealth.
Saving is as simple as it’s powerful. Make it a habit of saving at least 10 percent of your monthly income. Once you get used to it, you can set your saving percentage to 20 percent or higher. If you doubt the power of saving, call Warren Buffet.
We all have different goals for saving money, but one of the best goals is saving to invest. Stuck on where to invest your savings? You may want to invest with spaceship voyager.
- Take an Educated Risk
Taking risks is fine. And if you’re planning to take one, make sure it’s an educated risk.
A good example is diversifying your investments through the stock market, to enable you to create a nest egg for retirement. Great idea. But is it a risk? Absolutely. Is it an educated risk? Sure.
The reason this risk is reasonable is that you’re taking on the entire stock market on a bet. Unless the stock market crashes, you are likely to retire in comfort.
- Pay in Cash, Not a Credit Card
It is fine to fill your wallet with credit cards for prestigious purposes, but everyone knows that credit card debts suck. Avoid financing your lifestyle on credit. Try to pay with cash for everything from the local pub to the milkman to buying a car. But all’s well if you are handling the credit card balance well every month.
- Opt for the Lower Fees
Whether your fees arise out of credit cards, investments, banking charges, or other levies, try to make them lower. When it comes to investing, opting for lower fees is critical.
- Learn How to Compound
Compounding is the art of creating wealth from an existing asset. When an asset earns money, either from interest or capital gains, the proceeds are reinvested to generate more funds over time. It’s important to understand the power of compounding to enable you to evaluate financial decisions.
Making long-term smart financial decisions starts with making up your mind to be disciplined about your finances.