The Securities and Exchange Commission defines time horizon as, “Your time horizon is the number of months, years, or decades you need to invest to achieve your financial goal.”
You and I have enough time to do most everything we want. But we don’t have time to waste. Money has time value. Meaning, the longer we wait to pursue our financial goals, the harder they become to reach. You heard the saying, “The best time to plant a tree was 30 years ago. The next best time is today.” If we’d started saving for retirement the day we were born, that would have been ideal. The next best time is today.
Companies, sports franchises, politicians, and you and I, all face pressure to deliver results today and into the future. We’re all tasked with balancing today’s priorities, needs, and wants with those that are longer term.
Publicly traded companies must legally share progress reports quarterly. The CFO has a tough job because if the numbers they report don’t meet expectations, the value of the company can be reduced. So, they’re constantly monitoring today, as well as planning and deciding to make sure the company remains successful in the future.
The same is true for you and I. We want to live for today and enjoy ourselves, and we want to make decisions to ensure a great life for our future-selves. There is a lot of value in taking a business-like approach to our personal finances and our time-horizon planning. My goal is to give you the tools and ideas to make that happen in your life.
Fundamentally, you and I need money today. We’ll need it 10 years from now, and we’ll need it 30 years from now. Time horizon plays a critical role in planning our personal finances.
I’ve been helping people take a business-like approach to their personal finances for 20+ years as a financial advisor. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
- Short-term time horizon
- Mid-term time horizon
- Long-term time horizon
- The importance of good communication
Let’s get started.
Short-term time horizon
Publicly traded companies are legally obligated to share financial information quarterly on a 10-Q form. There are unaudited financial statements. Annually, they must share audited financial statements and commentary from the management team on form 10-K. Because of these stringent requirements, the CFO must maintain detailed records.
More so than that, the CFO is responsible for the financial success of the company. It’s their job to make sure all financial priorities are met in the short, mid, and long-term.
For personal finances, I break time horizon out like this:
Short-term: Zero to three years
Mid-term: Three to 10 years
Long-term: 10+ years
Cash is an essential part of financial success. Businesses rely on their cash flow to meet obligations, and you and I need it to pay our bills and fund our lives. But how much?
Almost 70% of Americans have less than $1,000 in savings, and 45% have $0.
The first step in securing your financial life is to get $1,000 saved up in your emergency fund. This should be in cash, and should be in an account that’s separate from your everyday checking account (a savings account works great). $1,000 is enough to cover most minor emergencies.
From there, your goal should be to save six months’ worth of expenses.
I know that’s a lot of money. And I know it will be hard to accumulate that much. But I also know once you do it, you’ll have financial peace of mind.
Once you’ve got your fully funded emergency fund, resist the urge to invest the money. You should keep it in cash. The last thing I want is for you to experience an emergency, and to discover your fund has decreased by 30% because the market went down.
Other short-term priorities include an annual vacation, and getting out of debt (You can access our Get Out of Debt course for free).
Mid-term time horizon
Your mid-term time horizon is three to 10 years. Common priorities and goals are:
- Saving a down payment for a home
- Saving for a child’s education
- Purchasing investment real estate
- Establishing and growing an investment portfolio
- Starting a business
Long-term time horizon
Your long-term time horizon is 10+ years. Common priorities and goals are:
It’s challenging to make sacrifices today in the service of saving for our abstract future-selves. God-willing, we’ll all be old one day. And that older version of you will be grateful for your sacrifices.
The importance of good communication
Publicly traded companies answer to their board of directors, shareholders, employees, Wall Street, and the media. When business and results are good versus bad, the job of a CFO is easier. Good or bad, it’s imperative the CFO does a great job of communicating with all stakeholders. They must position their message and create a compelling vision for the future. When times are tough, we’ve got a plan for turning things around. When times are good, we’re going to keep it going.
What’s at risk? A lot.
The share price could go down, which can have negative effects at every level of the business. Budgets slashed, team members laid off, and the executive team replaced.
You’re not at risk of that.
You’ve got a lifetime appointment as CFO of you. But you still need to work to get everyone on the same page. When times are tough, you need to do a good job communicating to your loved ones why things are the way they are. Maybe you need to stop eating out for a period, or other cutbacks need to be made. Whatever the situation is, the better you can communicate and get everyone on the same page, the better.
All of this is based on your ability to think about and set goals for your future. To help you in that process, you can access our Goals course for free. I also encourage you to take our Values course (which is also free).
As you’re engaging in your financial planning, keeping time horizon top of mind will help you better organize and prioritize. It will position you for the success you’re looking for.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
Connect with one of our Certified Partners to get any question answered.
Stay up to date by getting our monthly updates.
Check out the LifeBlood podcast.
LifeBlood is supported by our audience. If you purchase through links on our site, we may earn an affiliate commission. Learn more.