In this age of high-tech, immediate gratification – whether communicating through email, shopping online, or viewing on-demand movies and television shows – it can be hard to think long-term. The daily pulls on our attention, the strain of getting by on a bi-weekly paycheck, and those regular bills arriving monthly can keep our financial focus shorter term. However, breaking free of such constraints and taking a long-term view of our finances can provide us with certain advantages.
Taking a long-term approach to personal finances is something that I’ve done since college, and it has helped our family significantly in certain areas.
Homeownership is likely one of the most significant purchases most of us will ever make. And while the up-front sale price might seem like the big financial hurdle to clear, there may be an equally sizeable obstacle by way of the interest associated with the mortgage necessary to purchase the home.
Understanding that mortgage interest can more than double the amount it costs to pay off a home over the long-term pushed us to pay off our home faster than the terms of our mortgage dictated. We put a 40 percent downpayment on our first home, made both bi-weekly and extra payments ourselves, and took on a lower rate, 15-year rather than 30-year mortgage. This, in essence, cut our interest owed on a standard 20 percent down, 30-year, fixed-rate loan from around $267,000 over the course of the loan, to about $76,000 for our 40 percent down, 15-year, fixed-rate loan.
Paying off debt
When my wife and I graduated from school, we had a combined $50,000 in student loans. Rates on these loans ranged from 3 to 6 percent. And while we could have earned nearly 3 percent interest on our savings at the time, we took a long-term view to the situation and decided to pay off these loans as fast as possible.
At the time, we didn’t have a mortgage payment, we didn’t have kids, and we realized that we would probably never have as much disposable income to put toward debt as we did at that point. Therefore, we pressed ourselves, didn’t go out to eat, didn’t buy new cars, didn’t go on vacation, and waited to buy a home so that we could pay off our loans in less than three years.
We didn’t always make the best long-term calls though when we were young. However, some of our mistakes have helped us learn as we move forward.
As a young professional in my 20s, I was eligible to take part in a company stock purchase plan. I could purchase company stock at a discounted rate. After seeing a nearly $3 per share rise in value, I sold my shares even though I didn’t particularly need the money. The idea of a quick profit spurred me on. However, the stock went up another $30 over the next five years.
The situation was a valuable example to me to take a longer-term view when it comes to certain investments, to use time to my advantage, and not to let the thought of a quick buck and immediate gratification outweigh the potential for greater long-term rewards.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.