Expand Your Planning Horizon

When it comes to finance and investment, most folks plan for the short term, what they can see and benefit from here and now. The effect is that many factors are not considered in the decision-making process, thereby degrading the quality of the decision, resulting in poor decision-making and avoidable losses.

One key aspect that falls by the wayside due to myopic thinking is sustainability. Will this thing last the distance? Will it make sense in 10 – 20 years’ time? People are railroaded into pyramid schemes due to the attraction of instant profit. They forget to ponder on what happens a few years down the line when the army of the willing is seriously depleted.

Another key aspect that falls by the wayside is an exit strategy. Entering into any investment is a no-brainer, as long as you are accepted. All that is required is to fill out some forms, bring your money and you are in business. Coming out is always an issue. Most people park their money and go to sleep. They miss the key point of investment, having your money acquire assets over and over again, by going in, pulling your money out while still controlling the asset, as your money moves somewhere else to acquire more assets. Acquiring assets is the name of the game, while your assets pay for your liabilities. Your money becomes like a Labrador retriever, your money is a dog that goes out to drag assets back home, drops it in your sitting room, and goes out for more. For this to happen, you need to have an exit strategy.

Without a long-term plan, we simply lose sight of the effects of our current financial habits. We tend to focus on instant gratification, as we can only think about the here and now; tomorrow will take care of itself. We buy flashy cars without considering the impact it will have on our future cash flow. In ten years’ time, the car is history, whereas if the money was used to acquire an asset, it would have paid for the car, and bought a replacement when the car is due.

With a long planning horizon, you can plan ahead, and align your plan to meet set objectives. You can see easily that postponing a certain major purchase will improve your chances of meeting your financial targets, as you focus more on acquiring assets rather than liabilities. You also lower your expenses by forward planning. For example, buying a flight ticket weeks/months ahead is much cheaper than strolling in the day before to pay for your ticket. You can also plan your major expenses to coincide with sales seasons. For example, cars and household equipment in Nigeria are cheaper during the holiday (promo) season, Easter, etc than at other times.

Without a long-term plan, there is the temptation to consume every financial windfall that comes your way on the latest toy in town. Every bonus, arrears of payment, and pay hike will be used on your “to buy” list. As items on the top of the list get knocked off, new items join the queue at the bottom.

For a young person, ten years looks like an eternity. A day that will never come. But as you grow older, you will discover that delaying gratification to meet long-term goals pays over and over again. Using ten years to acquire assets rather than liabilities can make the difference between working for the rest of your life and retiring young and rich.

If you choose instant gratification, you will discover that the thrill of getting it now wears off rather fast, while you spend the future regretting not waiting. To make matters worse, car manufacturers change the design of cars every 2-3 years. The latest model in town becomes yesterday’s relic in two years. To keep up, you need to borrow, whereas if you focused on a long-term asset acquisition strategy, cash flow from your assets will easily fund your chosen lifestyle.

Learn to think long-term. Expand your planning horizon to 5, 10, 15, 20 years. Have a long-term goal, and current plans to make it happen. If all you can see is the here and now, you may not go far past where you are today, financially.