Living in the Moment While Planning for the Future
By Brittany Mollica
When it comes to financial goals, we’re often thinking about big, long-term objectives like saving for retirement, paying for college, or buying a home. Those are important, of course, but focusing exclusively on the long-term can mean that shorter-term goals might get overlooked. Life is all about balance, though: you deserve to enjoy life now while planning for the future, so it’s important to consider what your shorter-term priorities might be.
Have you always wanted to take an epic vacation to Bali? Are you in the market for a sports car? Are you newly engaged and planning to pay for your own wedding? While these smaller goals aren’t quite as daunting as funding decades of retirement, they can still be expensive, and it’s smart to plan ahead. Read on for tips on how to balance planning for the future and living in the moment, so you can enjoy your tropical vacay (or luxury car or dream wedding) without guilt.
1. Clearly define your target
Before you get any further, you want to be very thoughtful about what this short-term goal means and if it’s something you truly want. Do your research on the estimated cost, compare prices, and consider your options. Some specific questions to be thinking about:
What elements of it are non-negotiable to you and what are you willing to flex? You might really want to go snorkeling in Bali, but you don’t mind whether you fly first class or coach to get there.
Will pursuing this lead to an overall change in your lifestyle or monthly living expenses? If so, is that something you’re prepared for? One example: buying a nicer car could mean that your car insurance premiums increase, or you may have to start paying for premium fuel.
Determine your payment options - are you able to get a loan/finance it? If so, what are the current interest rates? Applying for a loan can impact your credit score, so you’ll first want to do some general research on financing options first.
Will you be able to continue working toward your longer-term goals while also saving for this purchase? For example, would you need to reduce your 401k contribution in order to have extra cash? If so, does that impact your retirement timeline?
By doing this research, you will shape your goal from a blurry idea into a clear picture of what you want. At that point, you might decide it isn’t as important as you originally thought. OR you might feel more confident this is something you’re ready to pursue – in that case, it’s time to make it happen.
2. Create an action plan
Before you start booking flights, your first step is to confirm exactly how much this might cost. Once you have an estimated total cost, you need to decide how you want to pay: paying in cash, borrowing from friend or family, financing with your bank or credit union, or a mix of all three. If your goal is to go on an international vacation, you might even be able to find a job that you can do at your destination (teach English, nanny, work at a hostel, etc.). Your financial advisor can help you determine the pros and cons of all these options.
Once you’ve determined how much you’ll want to pay in cash, you can easily calculate your monthly savings target: divide the total dollar amount you need by the number of months available. The longer you can defer this goal, the less you’ll need to save each month and the more flexibility you’ll have.
One tip to make this monthly savings even easier is to open a separate bank account and automate the savings as much as possible. Most banks will allow you to set up automatic weekly or monthly transfers from one cash account into another, which will help you save without having to think about it.
If you find your regular cash flow doesn’t give you enough wiggle room to do this additional saving, you have a few options that don’t involve building up debt:
Bring in extra income – can you work overtime or find a lucrative side hustle?
Temporarily reduce your regular spending – thinking about your current expenses, is there anything you can spend less on in order to help make this big purchase a reality? It can be tough to keep a tighter budget, so you may want to find ways to regularly remind yourself about your goal (start a countdown, change your phone background, regularly check your savings account, etc.)
Temporarily reduce savings toward other goals - while this is an option, we generally don’t recommend completely suspending your longer-term savings just to save for a shorter-term purchase.
Once you get in a good rhythm of saving, you’ll quickly be headed in the right direction. And when it’s actually time to book your scuba expedition or reserve your wedding venue, it can be strategic to pay for those large expenses with your credit card and then immediately pay your credit card off - this allows you to responsibly take advantage of your credit card rewards system while still not taking on debt. Win-win!
3. Celebrate your hard work
As a society, we tend to be laser-focused on the finish line without slowing down to enjoy the process of getting there. And once we’ve crossed the finish line, we’re encouraged to immediately aim higher and find something bigger and better to accomplish. But if this goal really matters, you owe it to yourself to take a step back and be proud of everything you are achieving along the way. Even more so, once you’ve reached your savings goal – when you’re about to walk down the aisle, your flight is about to take off, or you’re in the midst of signing the purchasing agreement at the car dealership – make sure you slow down and savor the moment. You will be thankful that you did!
Being thoughtful and proactive when setting short-term (and long-term) goals will allow you to find the ideal balance of preparing for the future and still embracing life in the moment. If you’d like a financial advisor to help you weigh your financial priorities so you can feel more confident in your short and long-term plans, don’t hesitate to reach out.
Originally posted on The Street:
https://www.thestreet.com/retirement-daily/nextgen-money/living-in-the-moment-while-planning-for-your-future
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.