Smart Financial Planning: Don't Risk Your Long-Term Goals to Meet Short-Term Expenses

Many individuals tend to spend their long-term savings during the festive season to fulfil their short-term desires. There are a number of reasons why people might do this. Firstly, the festive season is often seen as a time to indulge in luxuries and make special purchases.

Some may even feel pressure to keep up with their friends and family and go overboard with their spending on gifts and parties. Due to the desire to give your family and loved ones presents like a new house or car, festive times may also be a period of emotional spending.

[Read: 7 Ways to Control Your Habit of Overspending]

My brother and his wife recently shared their plan to purchase a new car and express their willingness to liquidate the mutual fund savings they had been accumulating for their retirement.

They said, "Retirement is not until the next 30 years, and we can easily plan for it in the later years. We have been considering buying a new car for a long time instead of creating a debt burden with car loan EMIs. This is a better option, we feel."

To which I replied, "You already have a car that's in good shape; if you manage your money wisely and practise delayed gratification, you could buy a new car in the coming years. However, if you liquidate your investments directed towards your retirement goals, it will derail your financial well-being. Risking your golden years' retirement corpus to satisfy your instant gratification will cost you the power of compounding, which is not a wise move."

Do note that short-term expenses should never come at the expense of your long-term financial well-being. Sacrificing your long-term goals, like a child's education, retirement goals, etc., for short-term gratification can have detrimental consequences down the road.

Firstly, it can create financial challenges and hinder your ability to save for the future. Secondly, it may result in accumulating debt, which can be difficult to repay-ultimately leading to a cycle of debt and vicious spending that is extremely hard to escape.

In the aforementioned instance, it is possible that the couple withdrew funds with the aim of making considerably larger contributions in the future to offset the compounded loss. However, it all depends on their financial commitments and situation, which may or may not allow a higher contribution. Therefore, compromising your long-term goals to meet short-term needs is not a good idea.

Now, you can do several things to avoid spending your long-term savings during the festive season. Think about the long-term implications of your spending. Ask yourself if a purchase is worth it or if it's just a temporary fix that will leave you in a worse financial position later on.

To effectively manage your finances and achieve your envisioned financial goals, a robust financial plan is what you need.

1. Prioritise Long-term Goals

Whether long-term or short-term, it is imperative that you consider your financial goals before making any financial decisions. However, you must prioritise your long-term goals, such as retirement, child's education, and homeownership, and not risk it at any cost. Our long-term goals serve as the cornerstone of our financial future and must be consistently planned for and worked towards.

[Read: How to Set Achievable Financial Goals And Plan to Achieve Them]

Additionally, you may practice delayed gratification towards your immediate desires and avoid making impulsive purchases. While planning and saving for your short-term goals is vital, it is not a good idea to risk your long-term savings in order to achieve your immediate desires.

2. Set a Budget and Stick to It

This will assist you in monitoring your expenditures and ensuring that you are not overspending in any one area. A well-organised budget is crucial for financial planning since it helps you find places to make savings and allocate funds towards your financial goals.

However, ensure that you stick to your budget; it is important to prioritise your spending, avoid unnecessary expenses and only buy things that you really need. Also, resist the temptation of giving in to the need to splurge just because it is a festive season.

3. Automate Your Savings

Set up automatic transfers from your checking account to your savings account so that you don't even have to think about it. This is an effective way to consistently save money without putting in extra work. Additionally, this will prevent overspending on unnecessary products.

Unexpected expenses can arise at any time, so keeping an emergency fund on hand will help you avoid depleting your long-term savings. Aim to build a contingency fund with at least 6-12 months of living expenses, including loan EMIs. This will act as a safety net towards any unforeseen circumstances.

4. Invest in Your Future

Investing is one of the most important steps in reaching your long-term financial goals. Even if you can only afford to set aside a tiny amount of money each month, start investing early and regularly. Over time, the power of compounding will enable your money to grow in value.

If you want to increase your wealth over time, consider investing your money into a well-diversified portfolio of mutual funds. Adopting a Systematic Investment Plan (SIP) in mutual funds helps you instil a good financial habit of investing regularly. It offers the benefit of power compounding and rupee cost averaging, allowing you to invest as little as Rs 500 or, in some instances, Rs 100, which is lighter on the wallet.

[Read: Begin with Minimum Investment in Mutual Funds And Watch Your Money Grow]

Ensure that your investments align with your envisioned financial goals, long-term and short-term, ensuring you build the required corpus in times of need.

5. Avoid Unnecessary Debt

Debt can be a significant burden, making it difficult to save for the future. There are times when one could borrow a housing loan, education loan, etc. The festive season calls for various purchases, including consumer loans for home appliances, expensive mobile phones, etc.

Do note having debt is not bad unless you have the intention of repaying it on time. It is crucial to understand that you must avoid taking on unnecessary debt, such as frequent use of credit cards or high-interest loans payday loans, which can hinder your financial progress.

[Read: How to Achieve Financial Goals With No to Low Debt]

Additionally, you should make gradual efforts to minimise your debt load and choose a debt reduction plan involving the avalanche or snowball method. Make use of your Diwali bonus to reduce your debt by paying off your high interest obligations.

Never hesitate to seek assistance. Several options are available to help you get back on track if you're having trouble managing your finances. For personalised guidance, speak with a credit counsellor or financial advisor.

By following these tips, you can avoid spending your long-term savings during the festive season and protect your financial future.

If you feel overwhelmed by financial planning, don't hesitate to seek professional advice from a qualified SEBI-registered financial advisor. Personalised guidance will help you create a plan tailored to your specific goals and circumstances.

[Read: The Importance of Financial Planning: How to Get Started]

Remember, financial planning is an ongoing process, not a one-time event. Regularly reviewing your finances, adjusting your plan as needed, and staying committed to your long-term goals are all a part of the financial plan. By prioritising your future financial well-being, you can achieve financial stability and security for yourself and your loved ones.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.