“We are the makers of our own state and individuals who realize this fact need not, ought not, to wait for collective action. ~ Mahatma Gandhi
Sustainable and renewable are two words that have become somewhat mainstream in the last few years. These words are generally used in an environmental sense when discussing energy and natural resources, but they can also be applied in a personal finance context.
Using sustainable and renewable sources of energy creates a secure supply of energy upon which people can rely. Similarly, ensuring that your lifestyle, saving rate, and income can be sustained and/or renewed will help you achieve both your short-term and long-term financial security.
A Sustainable Lifestyle
Examining your monthly spending in relation to your monthly income enables you to get a clear picture of your lifestyle, and how sustainable it is. If your expenses exceed your income, your lifestyle is obviously not sustainable, unless you are expecting regular income increases in the near future.
Ask yourself how long you can support your current lifestyle if circumstances were to change. What would you do if your source of income was cut short? Do you need to make any adjustments to your spending or should you focus on increasing your income?
A sustainable lifestyle helps you avoid getting into financial distress.
A Sustainable Savings Culture
To determine whether your savings plan is sustainable, ask yourself these questions. When you put your savings plan under the microscope, how much do you save each month? Would it be difficult to save that same amount if you were unemployed or were forced to accept a lower paying job than the one you have today? Do your savings earn you a competitive interest (one that beats the rate of inflation)? How do fees and charges impact your savings?
When saving for long-term goals, such as retirement or education for your children, the amount you end up with is significantly impacted by the amount you put away early on because of the effects of compound interest. Any interruption of the steady stream of savings could also significantly reduce the likelihood of achieving these goals.
A Sustainable Outlook
Although the future is unknown, taking inventory of your life will certainly let you know where you stand today and take the stress off your tomorrow.
If you cannot project an increase from your current level of income, spend some time contemplating how to cut back on your expenditure at least in the near future. Simplifying your lifestyle without reducing your income is a great way to free up some money to build up your emergency fund or give your investment plan a boost. These savings can also help you start or grow your business that can boost your income in the future.
With a little forethought, you can be prepared for any eventuality, and sustainability is all about planning for a better tomorrow.
Conclusion
Sustainable financial planning can be defined as a spending, savings, investing, and giving plan based on your personal values and goals. It means balancing your needs and wants with your financial resources, all the while focusing on your long-term objectives. Money is a limited resource. Every day we make decisions on what to purchase, save, invest and give. Once money is spent, it cannot be used for savings, investing, or giving. Every financial decision has an opportunity cost, and that should be calculated before a decision concerning spending is made.
A sustainable financial plan empowers us to look at money differently. Viewing money as a resource takes away some of the emotion tied to money. Money should be seen as any other commodity that can be used to help you achieve your goals.
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