Long and Short term perspectives on Finances

Australian Tax Time is nearly here – July 1st is the time to lodge our tax returns. In preparation I’ve spent a few moments reflecting on our finances. We’ve had a rough spot of late with expenses impacting rental income which affects my largest outgoing expense – mortgage repayments. We’ve had a tenant leave 2 months in to a 12 month lease, and the other property become empty as a our tenant finishes up. This has meant a fair bit of stress on us, not to mention advertising and re-letting fees we will soon incur. The income certainly has not covered the mortgage repayments with repairs and regular costs also hitting the available capital. I’ve had a little bit of a panic over this and it’s prompted a review of the financial plan and a some serious thinking. From a short term, close up perspective it doesn’t look good at all. The regular accounts are looking a bit thin and I’ve had to divert funds from investment activities to cover the shortfall. This means my Vanguard accounts haven’t built up as much as I would have liked.

It’s not all doom and gloom though. Each month I update our family net worth and look at it from a much higher, and (time-wise) longer view. From a property perspective neither of the two properties in the portfolio have gained much in the way of value (along with the rest of the country), but the debts attached to each rental have continued to decrease in a very satisfactory manner. My retirement funds – called superannuation in Australia (or just super) have also had a fine boost in the last month off the back of my contributions and more importantly, a stronger stock market. It has, in fact, gone up by about 5% which is pretty good over a 1 month time span. My Vanguard index funds have also rebounded as the stock markets have improved and are looking much more healthy – despite my challenges with putting more money into them.

The change of perspective – from the trees to the forest has been important and educational for me. It certainly allayed any panic I was feeling and has put me back on track. A close look at the low level doesn’t give me the full picture – especially when some of the big dollar amounts take time to change in a meaningful way. Looking at it over the longer time span and the path changes for the better. It’s important to see this and to remember that I’ve aimed parts of my finances at a target that’s 20 years away. Other parts are much shorter term and subject to much higher variability as a result. The longer view also shows how powerful small, regular contributions can be to investments or repayments, and this is not easily noticeable from the short term look. For me the moral of the story is to stay committed to the strategy and make tactical changes as required to be comfortable but not to despair when it seems nothing is changing. Check it against the long term plan before making what could be a disastrous, ill-advised change and take it slow.