Better decisions, lesser risk, compounding—here’s why we should adopt a long-term financial perspective.
Whenever we talk about finance or wealth creation, we should always remember that it is a long-term game. Becoming wealthy is often not an overnight thing (unless you win a lottery first prize!), and we consciously need to put in the efforts and make choices that help us walk on the right financial path and help us to create a successful financial plan.
Short-term financial decisions might provide gains in the short term and may seem to be the right choice in the present. But it is only in the long term that we realize the impact of our short-term decisions. Long-term perspective influences our future financial success.
Let us see how!
How Does a Long-Term Perspective Influence Our Financial Success?
Following are some of the key points that will help us understand how the long-term perspective influences our financial success:
Whether it's about finances or about life, we should always try to make long-term gains. That’s the principle of delayed gratification, i.e., resisting the immediate pleasures to receive something more valuable in the future.
If we think with a long-term perspective, we always consider all future events and make decisions accordingly. Thus, it can be said that a lot of uncertainties are taken into account while creating a successful financial plan.
When we consider a long-term perspective, this leads to better financial decisions about the future, which are the keys to financial success.
Wealth Creation vs. Income Generation
Income is what we earn, and wealth represents all the assets that we have accumulated. When we consider the short-term perspective, we might make more income-oriented decisions, i.e., the ways in which we can increase our income.
However, in the long run, what is more important is how much wealth we are able to generate. Therefore, in order to build generational wealth, we need to think with a long-term perspective. Financially successful people always strive to increase their wealth.
If we look for immediate returns and income, we might end up investing in riskier avenues. For instance, many people invested in cryptos and NFTs hoping to make quick gains and become wealthy. But not everyone had the requisite knowledge to invest in these risk-oriented assets.
For instance, after the crypto crash, many investors lost their capital. However, if we go for long-term returns and wealth creation, we will select the assets that will perform well in the long run. And in most cases, these assets are less risky as compared to others. For instance, blue-chip stocks are far less risky than penny stocks.
Compounding is popularly called the “8th wonder of the world." In simple language, compounding means the interest in the principal as well as the interest component. Compounding was the secret recipe behind the wealth amassed by Warren Buffet.
It’s no secret that Warren Buffet made 99% of his wealth after the age of 50. But he started investing at the age of just 11. Compounding yields results at later stages of life. Therefore, we need to stay invested for a long time if we want to unlock the benefits of compounding.
Another key factor for reaping compounding benefits is to start early. The earlier we start our investing journey, the more time we have to stay invested and grow our wealth. This is one of the best strategies for financial success.
If we want to truly achieve financial success, we need to adopt a disciplined approach toward investing. As stated earlier, becoming financially successful is a long-term game, and it does not happen overnight.
We need to actively take steps and stick to them to increase our wealth. One of the most popular ways to adopt a disciplined approach to investing is to automate our savings. This will ensure that you don’t have to consciously remember and put in efforts to contribute towards savings and investment.
Even small steps taken every day over a prolonged period can lead to significant wealth generation. This is known as the "art of continuous improvement" and can be well explained with this simple calculation:
1.01365 = 37.78
0.99365 = 0.03
Thus, even a 1% improvement each day can make us 37 times better in a year. Where even 1% deterioration each day can lead to disasters.
Benefits of Long-Term Financial Perspective
While we saw the impact of a long-term perspective on our financial decisions and success, let’s see why we should adopt a long-term financial perspective instead of a short one to achieve financial success:
- In the long run, markets are bound to rise. Thus, it reduces the need of timing the market for entry and exit.
- We often neglect our risk appetite and end up making losses. This can be avoided with a long-term financial perspective.
- Long term financial perspective considers both long-term and short-term goals and helps in planning accordingly.
- It is important for our long-term goals like retirement planning, buying a house etc.
- Helps create generational wealth as against short-term marginal gains.
- We make correct investment decisions and select the right asset class that suits our investment goals and needs.
How Can We Automate Our Investments?
Change Jar Technologies is the preferred investment platform for people who are willing to automate their savings and investments. Through the Jar app, investors can invest in digital gold. Gold has always been an investor’s choice when it comes to long-term and secured investments.
Whenever markets turn volatile, investors exit the markets to invest in relatively safer options like gold. Digital gold is gaining popularity largely because it overcomes the shortcomings of physical gold.
Further, Changejar allows investors not only to invest but to automate their investments in digital gold using the Jar app. It is a daily savings app whereby we can invest in digital gold for as low as Rs. 10. Further, we can set daily investment targets via UPI auto-pay.
Another interesting feature is using rounding off to increase investments. Through the Jar App, our expenses are rounded off, and the difference is then invested into digital gold. For instance, if we incur an expense of Rs. 191, it will be rounded off to Rs. 200. Rs. 9 will be invested in digital gold. It’s time we automate our financial success with the Jar app.