Thinking About Money: Long-Term and Short-Term Habits
Thinking about money can give you a headache faster than a lot of other topics. In the highly-connected financial world that we live in, trying to get your mind straight about what you should do and when, concerning your bank accounts and investments, can make you feel like you’re crazy.
There are ways to utilize long-term and short-term perspectives though, to make sure you are at least pointed in the right budgetary direction. Think about the lighting you use in your home, the stock market over time, and the value of your vehicle as it ages as examples. Beyond that, thinking in terms of cost per use is also a valuable theoretical tool.
The Lighting Example
Let’s talk about buying light bulbs for a minute. When you buy CFL’s, they cost a certain amount of money, have a certain amount of light output, and burn out after a certain amount of time. If you replace those CFL’s with LED bulbs, the initial cost is significantly higher, but within a long-term timeframe, you end up saving something like 90% on the cost of your lighting. Right there is an excellent example of long-term versus short-term buying habits.
The Stock Market Over Time
When you invest in the stock market, your potential for profit will go up and down. If you think about selling at one point or another, you’ll see significant differences in your actual gain. In general, when a market is trending upward, you just need to hang onto your stocks even as they go up and down temporarily. If you try to shortchange yourself, there’s a good chance you will either suffer a small gain or a substantial loss.
The Value of Your Vehicle
Another example of a time you would want to think about money would be regarding the value of your vehicle. You can purchase an expensive car, planning on selling it later. Or you can buy an inexpensive car and plan on using it forever. When you start to stretch out your financial timeline, you may find out that the inexpensive car has a far higher value because the more expensive vehicle loses value more quickly. Talk about a math equation!
Finally, there is an exciting way of thinking about short and long-term financial habits by establishing a cost per use. If you buy a breadmaker and only use it two times, then you divide the price by two, and you get your cost per use. If you buy a blender and use it every day for two years, then you divide the initial cost by 700. Which has the higher value? As you begin to answer these type of questions, you can approach your purchases more logically.