How Thinking Long Term Can Benefit Your Finances
When it comes to your personal finances, adopting a long-term mindset can be very helpful. Here’s why.
July 20, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
When we think of our finances, we often think of the here and now — I have X dollars in my bank account, or my rent is due tomorrow, or I need to buy groceries soon.
However, it can be helpful to zoom out and think about finances over the long term. Adopting a long-term mindset can help us make better financial decisions, plan for the future, and learn to balance the trade-offs that come with every financial decision.
From investing to budgeting, long-term thinking can benefit nearly every aspect of our personal finances. Let’s explore the concept in more detail.
The challenge of long-term thinking
Humans are not necessarily built for long-term thinking. Consider our hunter-gatherer ancestors, who spent most of their days looking for food and water to survive that very day. They weren’t thinking about next week, let alone next year — they were focused on pure survival.
The human race has come a long way since then, but many of those tendencies remain deeply ingrained in us. Our brains tend to prioritize instant gratification over long-term success.
The reasoning is simple: Instant gratification activates reward pathways in the brain, telling our brain that “this is good.” Delayed gratification — like saving an extra $100 out of your paycheck — simply doesn’t have the same feel-good effect on our brain’s reward system.
A simple example is the food we eat. Many of us would like to lose weight and know logically that it would help us be happier and healthier long-term. But how many times do we reach for that candy bar or dip into the freezer for some ice cream instead of choosing a nutritious snack?
The same concept can be applied to our finances. We could all benefit from saving a bit more towards retirement — but it’s much easier and more gratifying to grab takeout or treat ourselves to a new outfit.
If we can shift our thinking to the long term, we can experience more growth, fulfillment, and positive change in our lives.
How to frame your thinking for the long-term
It’s not so easy to switch from short-term thinking to long-term thinking, but it’s worth the effort. Here’s how to start shifting your mindset.
Approach decisions with curiosity
Remaining curious about your decisions and behaviors is key to changing your thinking patterns. When it comes to finances, curiosity can also be a way to curb impulse spending.
The next time you are about to make an unnecessary purchase, think about the why behind your decision. Do you genuinely need the product or service? Or are you trying to scratch an itch somehow? Perhaps you’re bored or feeling stressed. Or perhaps you’re making the purchase on autopilot, without even thinking about whether you truly want or need it.
Consider your values
Our values define who we are — and what we know in our hearts is right or wrong. You may not think that our everyday financial decisions involve our values, but reframing in this light can help change our behavior.
For example, maybe you value freedom and independence. Do your financial behaviors match this value? Maybe you could work towards early retirement instead of leasing that new vehicle. Or maybe you might take on fewer overtime hours at work so that you can spend more time with your family and friends.
Mindfulness is essentially being fully present in the given moment. It’s related to meditation, but the practices are distinct.
Mindfulness can influence our behavior and decision making. It can also help us become more grateful for the things we do have — which can make it easier to avoid unnecessary spending.
How long-term thinking can benefit your finances
Shifting towards a more long-term mindset can benefit your finances in a variety of ways. It can help us balance short-term and long-term goals, avoid knee-jerk reactions, and make more intentional decisions.
Avoiding rash decisions
When we think about the long term, we can make carefully considered, rational decisions — instead of the knee-jerk reactions that we may be used to.
For example, say you log into your investment account and see that the market has dropped 10%. Instead of panicking and selling your stocks, you could simply pause and remind yourself that you’re investing for the long term.
When you invest long term, you can simply ignore the day-to-day and month-to-month fluctuations of the stock market. If you’re investing on a 10, 20, even 30-year timeframe, these fluctuations simply don’t matter.
Balancing spending and saving
Each spending decision we make involves a tradeoff between spending and saving. Spending often provides instant gratification, while saving allows us to work toward our long-term goals. Thinking long term can help us shift more of our efforts towards saving rather than spending.
These decisions can be major, like using public transit instead of buying a second vehicle — or minor, like opting for black coffee instead of a latte. But over time, even very small savings can add up to real money.
Benefiting your future self
Finally, a shift to thinking about investing long term can greatly benefit the “future you.” Think of it like buying a gift for yourself in the future. You may not get the gratification now, but you will surely be thankful years down the road.
Long-term thinking can benefit your future self in several ways:
Investing can help you reach a comfortable retirement and enjoy your freedom.
Paying off debt can reduce your future monthly expenses, providing more freedom to spend on the things you enjoy.
Reducing your debt or balancing your budget can help reduce stress, potentially improving your overall quality of life and peace of mind.
For example, let’s say you have $4,000 in credit card debt at 20% interest. Right now, that’s likely costing you $800 per year in interest alone — not to mention the stress of having high-interest debt.
If you take steps today to pay off that debt, you'll likely reduce your stress load greatly. And you’ll have an extra $800 per year in your pocket to go out and enjoy your life.
Working towards paying off credit card debt? Look into Tally†, the app that helps qualifying Americans consolidate their credit card balances into a lower interest line of credit.
Shifting towards a more long-term mindset can provide a multitude of benefits in our lives — benefits that extend well beyond our finances.
If making more intentional decisions, reducing stress, and aligning your spending with your values sounds good to you, it may be time to adopt a long-term mindset.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.