Consistent commitment to long-term financial plans is a core aspect of financial discipline. Many people make the mistake of switching priorities too often over time, which hurts their long-term planning. Even worse, some people may lose sight of their financial plans and act irresponsibly, creating even bigger problems in terms of debt and lost investment.
An example is someone who takes out a personal loan to pay off credit card debt. Once the cards’ limits are available, this person may be tempted to go on new shopping frenzies, building up debt quickly again, while still having personal loan payments. This type of behaviour can prove disastrous over time. Families could simply go bankrupt if debt cycles become too close and unmanageable.
Similar scenarios where shifting priorities can negatively impact your financial standing include taking hard-earned savings to pay for something on a whim, deleting your safety net. Although money put aside may appear to be unneeded and can be replaced over time, the point of having this financial cushion is to deal with emergencies — that are by definition unpredictable.
To ensure that your stay on track financially, you must be ready to consider how committed you’re to your financial planning. Here are a few questions to get you started.
Your priorities
Over the years, our financial priorities evolve and change along with our life events. Your goals may be to buy your first home when you’re 30. But by age 50, retirement emerges as a dominant issue on the horizon. Regardless to your own priorities and financial resources, it is important to stick to core financial goals that serve you well in the long run.
For example, if you’ve saved for your first home’s down payment, don’t take the money on a whim to change your car because a friend recently upgrade his or her car or a complimentary test-drive won over your heart and mind. Similarly, if your retirement fund is building up nicely, don’t be tempted to invest the money in real estate without giving this change in course ample consideration.
The point is: If you’ve set well-thought-out plans for your savings and investments, do not change them without getting the full picture of what you’ll be earning and losing in the process. In addition, think of how you will be able to deal with the consequences in the area that you’re now abandoning.
Your motives
Rigidity is not the best way to go about investment or savings. But acting on a whim or impulse isn’t either. If your motive is to keep up with your social network or cheer yourself up with a major purchase, think twice. If you’re in a financial position where money is tight and it takes you years to put aside a comfortable cushion of cash, make sure that your reasoning for the change is as accurate as it could be.
In addition, think of your financial vulnerability. Someone who has a government job with guaranteed benefits and retirement schemes may be less vulnerable than a paycheck-to-paycheck employee in a volatile industry, where layoffs are rampant. Once again, it all comes down to looking at your individual situation and gauging your abilities to change long-term plans without compromising your current financial safety.
Know the details
Many people make these quick decisions under pressure either from sales people, friends or their own perceptions. Urgency is never a good state of mind to make financial decisions. So if you feel pressured in any way, step back and take your time. A good offer will be always there in some form, even if you’re told otherwise. And anything that is presented as a once-in-a-lifetime opportunities is probably a scam or has significant drawbacks that are being masked.
So before you act, think of the details, the fine print and what you’re getting. An investment that sounds too good to be true is probably a scam. A major purchase that seems to be the solution for your emotional slump is probably just a temporary fix. So be realistic before you waste your savings or jump into a new plan without enough consideration.
The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.
Changing long-term financial plans
Stick with your priorities, not others’
Know what is pushing the change
Don’t rush into making a decision
Check the fine print and authenticity of any offer
— R.O.
