In the world of personal finance and money management it is important to function with objectives. The objectives give you a direction that guides you to make decisions on a day-to-day basis. Without a vision of what you want to achieve, everything is much more complicated.
There are several questions that can be very helpful in forming that vision. For example:
Why do you want to be in good financial health? What is your main goal?
Do you want to grow your wealth to buy or spend on something specific? And if so, when do you want to do it?
How fast do you want to move forward?
What do you want to avoid along the way?
All this may sound very reasonable to you. Many people ask themselves these types of questions when building their financial strategy. However, there is another consideration that we do not usually take too much into account, at least consciously, and that is also very important when making decisions in this area:
Do you want to accumulate more money than you think you need?
In other words, do you want you over money when you reach the end of the road? Or do you not think it is necessary?
This question is very relevant, because depending on the answer you will have to be more or less disciplined with your expenses, and maybe also more or less aggressive with your investments. So yes, it is a question worth asking.
Let’s see what the considerations are.
Possible reasons for leaving money unspent
If you want to leave money unspent when you say goodbye to this world, it’s probably for one of two reasons:
- You want to leave an inheritance to people close to you (partner, children, other relatives or friends)
- Do you want to donate it to a charitable cause?
It is possible that you do not want any of this and prefer that your money stay there laughing, but it is not the most common. The most common thing is to want to do something “good” with that money once you are not around to spend it.
If this is the scenario that motivates you when it comes to managing your personal finances, you have to raise the stakes, because it means that you are going to have to generate more wealth than you strictly need to be happy.
Is this possible? Is it possible to get you over the money?
Yes, of course it is possible. The same as it is possible to achieve financial freedom.
In fact, if you achieve financial freedom, you will most likely end up with money left over.
Let’s see.
When pursuing financial freedom, those people who have good prospects of achieving it tend to maintain a high degree of discipline in their spending. They optimize their spending pattern, eliminating the unnecessary, and invest their savings regularly. In this way, they accumulate wealth with the aim of expanding their freedom of action in the future.
To be successful in this objective it is necessary to be persistent for a long time. And to be persistent it is necessary to be relatively satisfied on a day-to-day basis despite that spending discipline.
In other words, it is necessary learn to be happy spending less. If you’re upset, chances are you’ll eventually get off the wheel because you’ll see it as an unrewarding sacrifice.
Let’s say you achieve financial freedom at age 55 and have learned to be happy spending relatively little. You’ve gotten used to being happy like this. Are you likely to suddenly find yourself spending a lot more simply because you have money?
I would say no, because your head already works differently.
In that context, chances are you won’t alter your spending patterns much, and your wealth keep growing. In fact, it is what happens to most people who achieve financial freedom. Not only because they don’t start spending more, but because they continue to work on things that they are truly passionate about and generate income even after they are financially free.
People with this mindset often end up with more money than they need. But that happens naturally, because they don’t have to alter expenses to be happy. The freedom they enjoy gives them everything they want.
And when they reach the end of their life, they usually have a lot of money left in savings. A money that they can donate or leave as an inheritance to their relatives.
On the other hand, there are people who are not convinced by the idea of leaving anything as an inheritance or donating it to any NGO, and they prefer to enjoy their savings themselves as long as they live. For example, with a retirement in style.
If that’s the case for you, there are two implications to keep in mind:
- You have to plan how to spend based on life expectancy, and that has a margin of error, so you must include a good cushion in your calculations. You know, just in case.
- You have to monitor along the way and adjust your expenses to make sure you are going in the right direction. Don’t get too used to spending a lot, because you may have to make changes if circumstances change.
There you have it, depending on what your goals are, the areas you should focus on along the way are one… or another. Ask yourself the right questions and you will have a clearer idea of where you should focus your attention.
Give it a ball, Moneytimer!
If you want to access similar content, check out our #Lifestyle section.
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