Sometimes, I encounter acquaintances or can hear people say that “there is no replay in life” and that we all have a finite time to do something while we are well and alive. There are also those who like to say, “we only live once, make it count”.
This idea that time is a luxury is a fair and reasonably sound way to look at life, a person who is an optimist will probably be propelled by this mentality to take massive action to ensure he or she will have minimal regrets in life. But if you have absolutely no plans for your life, then ‘we only live once, make it count’ may look like enjoy and make it a colourful life. Over time, a person who has gotten too used to enjoying life may actually forget that we all have a purpose and higher calling in life and it is up to us to make it happen for our story to be worth telling and really ‘make it count’.
I advocate that it is very important for all of us to set goals and work towards achieving our goals. It is alright for a person to take the conservative approach when it comes to planning for the future, but we should keep taking on challenges and trying to improve. When things are too safe, it is not really safe, for everything in life tends to change and change is the only constant in life.
Goals Are Important
So, how important is it for us to have a goal? There’s a famed study conducted by Yale University back in the year 1953 appears to find that goal setting is very important. The study supposedly found that 3% of 1953 Yale graduates who had set clear, written goals have amassed more wealth than the other 97% of graduates combined. I am not so sure if that study is a fact or fiction, but I am very sure I would want to be the 3% minority. So I choose to believe that it is important to set our sights on goals. It will at least provide us with a sense of direction and helps in determining our daily activities and such.
Generally, we can segregate goals into short-term, medium-term and long-term goals. A short-term goal would mean that we have a very tight timeline to accomplish the goal and is usually referring to having less than three years. On the contrary, if you have set a three to five-year time frame for certain goal, this is usually also known as a medium-term goal; anything that is longer than five years is regarded as a long-term goal. When we make preparation or investment to accumulate funds to pursue a short-term goal, we should take a more conservative approach to ensure our capital can be preserved to a certain extent, so that the potential losses (if any) can be minimised. Since the time frame is short, we have less capability and not in a position to deal with situations where we will have losses from the investment. Alternatively, a long-term goal has a much longer time frame and we can make volatility a friend since if losses were recorded, there will probably be time to catch-up again. Also, a short-term goal usually has lesser flexibility as opposed to medium and long-term goals.
Dealing With Life’s Surprises
Apart from the risk of having capital be depleted by losses from investment, it is also important for us to acknowledge that life tends to throw surprises at us when we least expected it, these surprises can be from the macro level (change in interest rates, drastic weakening of currency, catastrophic events, just to name a few) or an individual level (illnesses, accidents, retrenched from job, divorce, law-suits).
When these surprises happen, we have to deal with it and make adjustments as to our personal life goals. Generally, we have these three alternatives:
- Extend our deadline (but we instinctively like immediate gratification);
- Forgo the goal (then we may have more regrets in life when we look back later);
- Restart from scratch (how many times can we afford to restart and reset?)
We cannot run away from surprises like these so we have to make preparations to deal with it. The main purpose of Financial Planning, is to make effective decisions and manage our personal finance in order for us to pursue our life goals. The very foundation of a healthy personal finance is none other than always having an emergency buffer fund prepared so that we can deal with surprises, without letting these external events destroy our plans.
Many a time, people fall into cashflow problems and debt issues that they find it very difficult to get out from. While we can easily recall the reason or the cause of this debt or cashflow issue, we may not realise that the root cause is due to a lack of emergency or contingency fund. When we happily spend all our take-home income, or invest all the surplus of our monthly cashflow or savings, we are taking excessive risks unnecessarily. Should some surprises pop up, we will then have no choice but to look for help desperately.
My Personal Story
I encountered a non-life threatening emergency event not too long ago. What happened was, my iPad Pro fell out from the bag which was placed on a chair, and the screen was cracked. It would cost RM 1,600 just to replace the screen. Since this is a tool that I have to use daily to perform my work, I had no choice but to send it for repair (buying a new one would cost more or less twice the money).
Sure, this wasn’t fun at all. But it could have been worse. If I was not in the habit of keeping a contingency fund, I may have to look for money to pay for this repair. If I have a weak savingsI may have to put my hand into my investment, or make a withdrawal from my Fixed Deposits to provide the liquidity and the required amount of money. Alternatively, I might have to put the device away and save money month-over-month in order to accumulate the money required for the repair and risk having my productivity affected. Of course, I might also have to borrow money to fund the repair, or turn to the credit card for help, and risk paying back in high interest later. Because I have prepared an emergency fund in advance, I was actually in a good position to deal with it and need not have to face these trouble or issues.
When we know that we have a strong foundation and that we are in a good position to deal with surprises in life, our mind-set will also become more positive and we’ll have more courage in our pursuit to have a satisfactory life.