Financial flexibility is one of the most important skills, especially in uncertain economic times. Life may not always turn out the way you expect, forcing you to reevaluate your financial plans. If you’re unwilling to adjust your budget and money management strategies as your circumstances change, you could get into debt or fail to achieve your goals. Here are four reasons why being financially flexible throughout your life is so important.
The Market May Underperform
When it comes to the stock market, no one has a crystal ball. Even experienced traders can’t predict future stock market returns with 100% accuracy. Some leading investment firms such as Charles Schwab are forecasting that returns over the next decade will be lower than historical averages.
If this prediction is accurate, workers may need to increase their retirement contributions to stay on track. Additionally, retirees might need to lower the amount that they’re withdrawing so they don’t deplete their portfolios.
Being willing to change how you manage your money in light of economic shifts is key. People who are flexible and willing to adapt to current market conditions usually end up in a better financial position overall.
Your Life Will Have Twists And Turns
Unexpected life events are another reason why it’s important to be financially flexible. The twists and turns of life can sometimes throw you off track when it comes to your financial goals. You may need to adjust your financial plans if an emergency strikes or your lifestyle or income changes.
For example, if you want to stay home with your young children for a few years, you may not be able to save as much for retirement during that time. To make up for the shortfall, you could push your retirement date back or make catch-up contributions when you return to work. Getting a part-time job in your golden years could also help bridge the gap. The point is, you’ll have to make up for the lack of contributions during your career break in some way. Otherwise, you may not have enough money in retirement.
Taking a sabbatical or facing an unexpected setback such as an extended illness may affect your financial goals and plans. But you’ll still be able to achieve your dreams if you adjust your financial strategy to reflect your new circumstances.
Your Goals May Change
As you grow and change, you may not want the same things, and that’s ok! There’s no reason to stay at a job you hate to retire early if you decide you’re fine with working longer. You don’t have to go through the motions of fulfilling financial plans that are no longer serving you.
Maybe you used to dream of owning a home, but now you love your low-maintenance apartment life. In that case, it’s fine to stop putting money in your down payment fund and start saving for new goals like travel. Some people may not agree with your financial decisions, but that’s why personal finance is personal. What works for you probably won’t work for someone else because your money management strategy is an expression of your unique values and goals.
As long as you’re making responsible, well-thought-out decisions, it’s ok to shift gears and tweak your financial plans to match your current dreams and mindset. You don’t have to follow your past financial plans out of a sense of obligation if they just don’t fit you anymore.
Being Adaptable Helps You Avoid Debt
After the 2008 recession, my dad had a hard time bouncing back and earned a lower salary than usual for several years. Instead of asking the family to cut back our lifestyle, he juggled multiple credit cards to try and pay for everything.
We still shopped at Whole Foods and ate out, and I stayed enrolled in my expensive private high school. If we had made some sacrifices and lived within our reduced means, my parents probably wouldn’t have racked up debt.
When your income or financial situation changes, it’s important to reevaluate your budget and cut back if necessary. Trying to maintain the same lifestyle as before will probably cause you to accumulate debt.
Do you think financial flexibility is important? Why or why not? Share your thoughts in the comments!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.