Many young people are taking the view that financial matters don't matter and that they don’t need to plan their finances because the world is so uncertain.
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Instead, they are spending today, living for the moment and enjoying life while the good times last. After all, there is so much uncertainty in the world, with conflicts threatening to erupt, climate change, and impending AI-driven doom.
But if history is any guide, society’s problems don’t last forever. Even the worst crises come to an end and the world returns to normal. Investments continue to grow, and people continue to achieve wealthy lifestyles.
This long view can be hard to see for younger people, but gaining this perspective is essential. Without it, individuals could find themselves making poor decisions about what to do with their money.
The purpose of this post is to look at some of the specific reasons young people should still have a long-term outlook when it comes to their finances. Planning for many years in the future can have a tremendously positive effect and lead to unimaginable financial freedom for people who plan financial matters properly.
Perhaps the most significant reason for taking the long view with finances is the compound interest that individuals can earn. Money grows rapidly over time, particularly if you have a large quantity of capital to start with.
Interest builds tremendously, the more money you have, at an ever-accelerating rate. What’s more, tiny contributions to your fund when you are young can balloon into substantial sums of money as you get older.
Interest compounds and payments balloon massively changing your wealth dynamic as you get older, freeing you up to live your life as you wish instead of having to constantly do what you are told by an employer.
Starting early to learn about financial matters and talking to a financial adviser is also essential for retirement planning. While it might seem like it is a long way off, retirement comes around surprisingly quickly, and you want to be prepared for it.
Don’t underestimate the value of planning for retirement. While you might be strong and fit now, that inevitably changes as the years pass. Getting to retirement without a strong portfolio can leave you feeling vulnerable.
Once you have a substantial nest egg, you are freer to do what you want. You have money to cover travel expenses, medical care, and hand-outs to family members while taking care of yourself at the same time.
You should also consider investing when you are younger because you naturally have a higher risk tolerance. When you are young, you still have plenty of time to wait for market crashes to shake out and for participants to understand the true value of financial assets.
You don’t have that kind of luxury when you are just a few years away from retirement. Assets, like bonds, are low-risk and good for older folks.
However, they yield low returns and are more of a way to keep money rolling in instead of building a large portfolio. High-risk assets, like equities, grow significantly faster over the long term.
Setting Financial Goals
Setting goals with regards to financial matters is another reason young people should take a long view when it comes to their finances. Having clear objectives in mind helps individuals to make prudent day-to-day decisions in how they manage their finances.
When you have a goal in mind, it makes you think twice about spending money on things you don’t need, want, or require. Gaining financially is always challenging and takes a long time.
Progress can seem slow for many years, but it does eventually accelerate once compound interest takes hold. It might seem like you are decades from your target, but if you are halfway there in terms of money, the chances are that you are already very close.
Markets are famous for fluctuating over the short term. Crashes can quickly wipe out massive chunks of value, causing portfolios to plummet. However, taking the long view helps you see past these hurdles.
While it can be scary to see your savings losing half their value, markets always rebound and good companies inevitably thrive. Setting long-term goals when it comes to financial matters is essential for this kind of resistance to short-termism.
It’s why none of the biggest investors jumped on the Gamestop hype train when that was getting out of control in 2020. It’s also why investors didn’t react to the COVID-19 crash. They saw value in the market and stuck with it.
Young people should also build a financial safety cushion for themselves to deal with career changes. Having extra money enables individuals to switch jobs and find meaningful work they enjoy instead of taking the first paycheck that comes their way.
Career changes can take time and often require significant retraining. If this training takes a couple of years, then individuals need substantial funds they can draw on to make the move. Drawing down on this money in this case can help secure a long-term future.
Financial Matters & Longer Lifespan
Longer lives could also be a reason young people should take the long view. People born after 2000 are highly likely to see the year 2100 as technology improves. At the moment, we don’t know just how much longer the average person will live.
Life expectancies are declining in the West because of poor dietary and lifestyle habits, but that is likely to go into reverse again, with an upward trend mirroring that of the 20th century when cities began benefiting from public sanitation and proper medical facilities.
Life may double in length over the next century if the science of longevity progresses. Supplements, drugs, and genetic reprogramming could have a potent effect, leading to the need for more retirement savings to enjoy a longer, healthier life post-work.
Finally, starting young with getting to know about financial matters and taxes is important and will save you money and headaches in the long run. First of, starting early is more tax-efficient than leaving it until later.
That’s because the government limits the amount of money you can put into tax-efficient accounts annually. Using your allocation for more years secures a more substantial retirement fund in the future.