This post is by our regular contributor, Erin.
Quick, put yourself in these scenarios and answer honestly: You see that one thing you’ve been coveting for months, and it’s on sale. You didn’t budget for it, but it’s a steal. Do you buy it, or do you wait?
You’ve been tossing around the idea of buying a house within the next year or two, and you see an amazing property come up for sale in the location you’d love to move to. Do you call up a real estate agent and get the ball rolling, or do you stop and crunch the numbers?
Say you get a job offer with an amazing salary. Do you look at the other benefits provided, see how many hours you’ll have to work, or just accept it based on salary alone?
If you chose to take action immediately, you might have a short-term mindset when it comes to money.
While thinking too far into the future isn’t always beneficial to your situation, having a short-term mindset hurts your finances in more ways than you realize.
How Having a Short-Term Mindset Hurts You Financially
In all of those examples above, having your eyes on the immediate prize is going to leave your wallet hurting. Short-term thinking with your money almost always leaves you in a worse position than you were in before.
I’d go so far as to say one of the biggest reasons people end up in credit card debt is due to short-term thinking.
Well, I don’t have the actual cash right now, but I do have a credit card, so technically I can buy this and worry about it later!
That kind of thinking is never going to get you ahead. You need to strike a balance between considering your present and future needs to avoid buyer’s remorse.
Here are a couple of situations in which it pays to be more forward thinking about the state of your finances.
Buying a House
A lot of people contemplate becoming homeowners once they hit their mid-20s. It’s as though an internal switch goes on inside of them and they want to settle down.
I can’t relate to that (I enjoy my flexibility too much), but a lot of my friends have fallen into this line of thought just because.
The classic American dream is having a nice, big house with a white picket fence and your family playing outside.
While it seems like more and more young adults are fighting this cliche, there are others who go into homeownership thinking it’s something they “have” to do when they “grow up.”
As a result, they don’t go into it with eyes wide open. They may start searching for a home without being super serious, perhaps at the suggestion of their parents or significant other, when they spot the one and want to put an offer on it without going through any of the calculations.
Buying a house without running the numbers could leave you house poor or even worse, underwater on your mortgage.
What’s the area like? What’s the condition of the house? What are the school districts like? Does the house leave you room to grow, or is it only good for your current needs? How stable is your job? Does your industry employ a lot of people in your area?
We could go a step further and say you’d be in a semi-serious predicament if you went with an adjustable-rate mortgage for the low interest rate, not realizing how much it would increase by in five years.
There’s far too much to consider when buying a house for it to be a snap decision. Do yourself a favor and go into it with a clear plan and understanding of the responsibility you’re taking on.
Taking a Job For the Salary
This is one I’m sure almost all of us have been guilty of at one point or another in our lives – especially when we graduated from college.
We want to earn a decent living, and after earning (most likely) less than $15,000 during college, we have our eyes on a new benchmark.
So when we’re offered a job that pays $35,000, $50,000, or maybe even $75,000, we’re over the moon. We don’t even pause to think, we just accept. Something is better than nothing, right?
I learned that lesson the hard way after my first job. It was salaried, but I stayed late to finish projects constantly. The job description wasn’t accurate, and I ended up doing something completely different that I wasn’t happy with.
It absolutely pays to ask questions and review the benefits offered before you accept. There’s much more to a job than just the paycheck you’re taking home. Insurance could be a huge concern, or maybe you just want a job that offers flexible time off.
Either way, think about more than just salary when it comes to your career choices.
Not Reinvesting Your Money
It can be incredibly hard to part with your money, especially if you’re a small business owner. You’ve invested so much time and energy (not to mention money) into your business, and you’re finally starting to see a return.
It doesn’t come as a surprise that you would want to keep the money to yourself after bootstrapping your business. You’ve been living on a bare-bones budget for months and there’s finally a glimmer of hope.
While you need to make ends meet, don’t be so afraid you don’t reinvest any money back into your business. I’ve been there, and each time I’ve (thoughtfully!) reinvested in my business, it has paid off.
Your company shouldn’t remain stagnant, and neither should you. Your business needs to grow, and that usually means making a sacrifice or two along the way.
Avoiding Grad School
Anyone who has looked into attending graduate school knows it’s a costly investment in their future. Some shy away simply because of the price tag.
I did this – after graduating college and realizing how much student loan debt I had, the last thing I wanted to do was spend more on tuition.
However, I also researched the programs available and realized I didn’t want the career path getting a master’s degree would have provided.
Most people don’t take that second step. You need to consider the return on investment you would get by obtaining a master’s degree.
Would your job prospects go up? Would you be able to command a higher salary? Could you receive a promotion at your current place of employment?
Don’t let price be the driving factor behind your decisions. Be wise about your spending, of course, but don’t be short-sighted when it comes to investing in yourself and your earning capacity as you may be losing out on money.
Giving Into Instant Gratification
This is the ultimate form of thinking only in the short-term. Not thinking past the current moment of what you want can cause a whole host of problems: debt, things going to waste and clutter gathering in your home, generally feeling unhappy because you have a few money leaks you need to plug, and the list goes on.
Instant gratification is temporary. It feels good in the moment, but we forget about it soon after. Wouldn’t building a lasting financial foundation be better for yourself and your future?
_________________
Don’t make the mistake of making snap decisions when it comes to managing your money. Always think of the repercussions. There’s always a ripple effect whenever you choose to take action. Figure out what those effects will be and how they’ll impact your bottom line before making a decision.
Has there been a time in your life when you had a short-term mindset with your finances? Did you realize it beforehand, or did it take a while to figure out? What other situations can you think of that exemplifies short-term thinking with money?
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This is a great point! I don’t regret my law school education at all — I just regret the amount of debt I took out to finance it. Had I taken out half, I would’ve been in a better position (but that still requires looking ahead).
For years we had the short-term mindset. We’d never think past “today” when managing our money, and it really is what led us to accrue massive amounts of cc debt.
I struggled with that short-term mindset for years. I only thought in the moment and it landed me in a bunch of debt because I gave little thought to how that would impact me or goals I had in life. Once you bring in focus on goal(s) and combine it with what you need to do financially to reach them you’ll begin to turn that tide.
I think short-term thinking in general is detrimental – and not just to your finances. I’ve always thought the skill of prioritizing the long-term is one of the most valuable.
Ah! I’m afraid I still have to fight my short-term impulses. Once it’s ingrained, it takes so much self-talk to steer clear of it. The hardest thing for me to avoid is that sense of “Come on! It’s just $___. It’s not that much. And you don’t know if or when this opportunity will come again.” It’s a tough one to stare down, even when you know long-term thinking is best. Still a work in progress!
I’m sure there have been plenty in my case, but my husband is most guilty of this. (Yay, ADD.) He knows that we have money, so he doesn’t understand when I don’t want to buy X,Y or Z. Even though he knows abstractly we have other goals that we’re holding onto the money for.
It’s a push and pull. Sometimes I *am* being too rigid. But usually he’s just being too short-sighted.
Things can change so rapidly in the short-term. What you think might be happening tomorrow may not. Unfortunately our emotions often get the most of us in the moment and lead us into wrong decisions. If we could just step back and allow the emotions to pass we’d make a decision that will benefit us in the long-term.
Jaime Donovan That’s a good example, Jaime. I’ve known a lot of people who treat bonus money as “instant spend” money since it’s money they hadn’t accounted for.
Financegirl It’s so hard to anticipate college expenses sometimes. I tried my best to keep my costs down, and by most standards, I did, but I still wish I had done more!
Laurie TheFrugalFarmer Yep, thinking long-term is one of the easiest ways to motivate yourself to take care of your money more.
FrugalRules Good point, John – it can be difficult to realize just how detrimental debt is when you’re only viewing your finances in a short window of time. Even worse, it leads you to think debt is just there to stay!
stefanieoconnel Same here, Stefanie! I’m much more future-oriented and probably thinking a little too long-term!
PruDebtFree That is definitely a hard habit to break! Sometimes, the best thing you can do is add up how much that’s costing you every year, and realizing where you could put the money instead. Framing it as, “It’s actually $500 over the year with how often I justify it!” instead of, “Well, it’s just $5” can make a difference.
AbigailP I’ve dealt with that before in the past, too. It can be tough to strike a balance. “We’ve got enough to afford it!” “Yes, but in my mind, it’s earmarked for this, this, and that already!” I am certainly guilty of being a little too rigid, but I’m a planner at heart.
Brian @ Luke1428 Yes, definitely! This is why delayed spending is so effective. Money is a very emotional thing and it’s easy to make irrational decisions in the moment.
Growing up, I was always told things like I needed to get a high paying job, buy a house asap, etc. When I ask people why they decided to buy a house, a common answer is well I’ve always wanted to be a homeowner and it’s a life milestone for me. Sometimes when we set life milestones for ourselves, we want to achieve it asap which can turn out to be a short-term view and detrimental to long-term finances. It’s important to evaluate based on one’s life currently and not simply act based on what we planned our lives to look like when we were 14.
We took 2-3 years to decide whether to buy a house (our poor realtor!). We ran the numbers over and over and eventually concluded that we weren’t going to view buying a home (to live in) as an investments because of all the hidden and incidental costs. We decided to buy a home because we wanted one, and could afford one. I think if we hadn’t worked through that, we’d be upset that our home hasn’t appreciated much in the few years since we bought it.
George @ Properly Yes, very much agree, George! There’s this “path” we’re told to follow at a young age simply because it’s what most people do, and that’s very short-sighted. There’s no one path to success.
Pretend to Be Poor That’s a great example! I’m not a homeowner but having read quite a few posts on the subject, I think I’d have to agree with you on that. How you frame your purchases certainly matters!
I agree so much on the part about taking a job for a salary. SO MANY people say “Well you should at least be glad you have a job!”
Yes, that is true but it one also needs to remember to full assess whether the job is a good fit+negotiate salary. Otherwise you will be job searching again with the next year!
I love your point about taking a job just because of the salary. There are so many other factors to consider outside of the pay rate, but when you’re anxious or desperate for work, you can be more likely to accept the job without doing further research.
colinashby Definitely. You should never take the first job that comes your way unless you’re in dire straits. That’s why it pays to have an emergency fund, too. Having savings allows you the comfort of thinking longer-term!
Chonce Yep. One of my friends just told me that their department hired someone without even giving them the proper details (salary, schedule, benefits, etc.) and they just said yes! HR screws up sometimes, it’s perfectly okay to ask for those details before just accepting a job offer!