When you think about it, personal finance is about playing the long game. Sure, it's about other things as well. It's about paying off debt. It's about spending less than you earn. But when you think about it overall, it's about making choices that are harder in the short term for the good of the long term. Here's what I mean….
Saving for retirement
Saving for retirement, for example, means having less money to spend today. Having less to spend today can help avoid lifestyle inflation, which is generally regarded as a good thing.
However, there are plenty of responsible things that could be done in the short term with that money. For example, you could pay off debt or give to a charitable cause that is meaningful to you. You could stash that cash in an emergency fund or eat organic foods and hire a personal trainer.
None of those are necessarily bad choices. But you decide that taking responsibility for caring for yourself in the event that you are no longer able to work full time is more important, so you play the long game.
Saving in liquid vehicles
Keeping an emergency fund in a “high-yield” online savings account or even a few certificates of deposit (CDs) doesn't provide nearly as good of a return as many other types of investments. (Notice the sarcastic quote marks around “high-yield,” and even CD rates aren't much better at the moment.) However, investments that typically provide higher returns are also riskier; that is, they don't always provide higher returns.
In addition, keeping your funds in other types of investments may mean they are not easily accessible if you need them quickly. By maintaining a reasonable balance in liquid vehicles, you decide that losing out on some dividends or interest is a smarter choice than paying interest to a credit card company when emergency strikes, so you play the long game.
Insuring yourself also means having less money to spend today. And sometimes it seems that there is no end to the types of insurance we “need.” I have the following:
Disability insurance (short- and long-term)
Long-term care insurance
And those are just the ones I can think of off the top of my head! I'm sure there are some I am missing. In the short term, that is hundreds or thousands of dollars I am “losing” each year to the mere possibility that something bad might happen. However, if something were to go wrong, I could lose much more, and that is what I'm protecting myself against. An event like a car crash (even if it isn't my fault) or a catastrophic illness or injury could blow through even the beefiest of emergency funds in a single day. So I pay my insurance premiums and play the long game.
Maintaining big-ticket items
Think about the type of maintenance you have performed on your car: Changing the oil, rotating the tires and checking their air pressure, changing the air filters. Now think about your house: Changing the air filters, tuning up your air conditioner or heater annually, flushing the water heater, pruning large trees.
Why do we pay to take care of the things that we own? It's because the better we take care of them, the better they will work. (You may save on gas by getting better mileage, for example). Not only that, but regular maintenance can help extend the lives of big-ticket items so you don't have to pay the much higher replacement cost. In this case, playing the long game can mean you'll be less likely to replace big-ticket items at an inconvenient time.
Replacing big-ticket items
What? We just finished the section on maintaining big-ticket items, now I'm saying replace? Yes, part of playing the long game is knowing how long maintenance and judicious repair are the least expensive options and when replacement will actually save more in the long run.
In the case of our HVAC, for example, a thousand-dollar repair on our 20-plus-year-old unit, coupled with electric bills that exceed $300 during the hottest part of the summer meant that replacement was the better option. We are paying just over $5,500 for our new unit, which is definitely a play for the long game. However, we anticipate saving enough to make that investment worth it, especially since we saved for the purchase and won't be paying any interest.
Paying off debt
Financing your life with debt is a tricky proposition. Not only do you pay more over the long run because of interest; in essence, you're also placing a lot of bets that are unlikely to pay off. You are betting, for example, that you will always make as much money as you do now. You're betting that you won't retire, be injured, or get sick.
That's pretty much the opposite of playing the long game! Fortunately, making more than the minimum payment each month on your debts can save some money you would have spent on interest. It can also get those payments out of your life sooner so you can start funneling money into some other aspects of the long game.
Financing big purchases judiciously
As I pointed out above, sometimes it is cheaper to maintain or repair and other times it is cheaper to replace. Similarly, sometimes it is cheaper to save and pay for things outright and other times it is financially responsible to take on some debt. The trick is to be rational about these types of decisions if you can. (Sadly, our relationship with money isn't always rational!) For example, Jake's decision to take out student loans for three years to go to law school and gain a skill that would net him a six-figure salary was financially sound. My decision to spend eight years in graduate school accumulating an equivalent amount of student loans for degrees in English was not.
To give another example, the combination of low interest rates and the value that homes in our area lost during the Great Recession led us to conclude that buying when we did was the better financial decision — even though we were unable to put 20 percent down. Waiting would have meant paying a higher purchase price and having a higher interest for an equivalent house, all while paying rent in the meantime.
Priorities and the long game
Perhaps the biggest trick to the long game is realizing that you can't do everything at once. As the saying goes, you can have anything you want, but you can't have everything you want. You have to establish financial priorities and create your own personalized long game.
What specific actions are going to save you the most money in the long run (or enable you to earn the most)? What order makes sense for your life and goals? If you haven't always played the long game in the past, how can you start now and get back on track? Decide and take action!
Honey Smith has been reading GRS since at least 2008, right when she got her first â€œrealâ€ job and started getting serious about finances. She and her husband Jake are in their mid-30s and recently bought a home together. Currently, she manages graduate programs at a large state institution, and he is an attorney at a mid-sized firm.
Between them, they have paid off approximately $30,000 in consumer debt since she started writing for GRS in 2012. However, they still have nearly $200,000 of student loan debt, so she will continue to chronicle their debt-paydown journey. In addition to personal finance, Honey is interested in vegetarianism and cooking, gardening (despite living in the desert and having a black thumb), issues in higher education (including the student loan bubble and the slow death of tenure), and animal rights; however, her heart lies with fantasy novels, trashy TV and Skyrim.