Why should one think in the long term before spending on financial goals?

Amit desired to renovate his home. He had planned to spend between Rs. 7 and Rs. 8 lakhs on the project. 

He had gotten quotes from a few good architects and settled on one whose price matched his expertise.

While the renovation was going on, Amit was advised to renovate his bathrooms and attic as well. It seemed reasonable. He wouldn’t have time to do this later.

He considered purchasing new furniture after the renovations because the ones he had, looked old in the new house. The house now appeared to be posh and lovely.

Amit had already exceeded his budget by a few lakhs, to Rs.15 lakhs for which he went for a top-up on the home loan. He didn’t give it much thought at the time. But this caused a dip in his overall monthly savings.

What he didn’t realize was that this extra expense had a cascading effect on his finances.

They took a planned international vacation the following year. To achieve his goal, he needed to take out a loan of about 5 lakhs. Again, his EMI payment towards the vacation brought down his monthly savings.

His son graduated a few years later, and they were planning a post-graduation abroad. Because of the drop in monthly savings, there is once again a significant gap between his investments and the planned budget for his son’s higher education. So he had to go for an education loan.

He does not want to burden his son with a large EMI as soon as he finishes his education. As a result, he contributes to the EMI on his education loan.

Again, all of this has an impact on his retirement corpus.

As a result, he is forced to work for a few more years to retire safely. His dream of retiring early and pursuing his passion post-retirement is crushed.

When it comes to goals other than retirement, total spending can be flexible. (i.e) Spending on furnishings could be forgone, vacations could be taken closer to home, education loans could be paid off by the child, or college choices could be more cost-effective. However, retirement expenses CAN NOT be compromised.

Prioritizing one’s financial goals always aids in budgeting for expenses. If one’s goal is to be financially independent after retirement, saving for retirement should be the TOP priority.

Any big spending should be aligned with long-term goals.