For millennia, the term balance has been considered one of man’s most recognized virtues. Although historically this concept has almost always been used for morality -in fact, in Ancient Greece, the great Aristotle referred to moral virtue as the middle between two extremes-today we can also extend this virtue to finance, and the balance that the great Greek philosopher spoke of can now be assimilated to financial sustainability.
After all, the income and expenses of an individual, family, company, or country can also be understood as the two extremes of which Aristotle spoke. In this case, virtue will lie in the way we balance the two.
What is financial sustainability?
Financial sustainability is the ability of any actor to meet its present and future spending commitments without default. Thus, the concept encompasses a wide range of actors, ranging from an individual or a family to a company or the country’s own government or other public body. It also refers to the principle of sufficiency, i.e., that revenues must be sufficient to meet expenditures over time.
Sustainable finance
Intricately linked to financial sustainability has been gaining momentum the concept of sustainable finance, which refers to the inclusion of environmental and social issues in the future investment decisions of all actors. This, again, includes all types of actors ranging from the decisions an individual makes when buying a car, a house or investing his or her savings to companies and governments that must adapt them in their growth models.
In the end, like financial sustainability, it helps the different actors to maintain their economy in a healthy way. Sustainable finance seeks to generate balanced growth in the long term, so that we do not use the planet’s resources beyond the Earth’s own capacity to generate them.
How to achieve financial sustainability?
Financial sustainability will help you face the future with less uncertainty and more guarantees. It also plays a fundamental role in helping us achieve our life goals. To achieve it, you will need to take the following steps:
Savings planning and setting financial goals
Saving is the first (and most important) step to achieving financial sustainability. However, it does not consist of simply saving, but must be planned. In this case, for savings to be really effective, we must set goals or objectives that we want to achieve (buying a house or our retirement) and then plan the contributions that we should make according to our possibilities. In this way, we will also manage to be more constant.
Diversification of income sources
Once we have established goals and a savings plan, the next step is to support the generation of capital by obtaining a return on the money saved. To do this, we must take into account two fundamental points. The first is our risk aversion, i.e., with which investment (or savings) products we feel comfortable knowing that a higher return also requires more risk. The second is the time frame for meeting our financial goals, since the recommended investment products depend on the time frame of our objectives.
Time and knowledge
The possibility of knowing the markets and being up-to-date with the economic situation in general will help us to select the products that best suit our profile and objectives. However, this is not always possible, either because it requires knowledge that we do not have or time that we do not have.
In such cases, it is advisable to rely on professional managers who offer both knowledge and dedication. Even so, bear in mind that it is usually an expensive service.
An alternative that has grown strongly are the automatic managers or robo-advisors, which offer a similar service (they create a fully customized portfolio) with very low costs.
Choosing the right products
Related to the previous point is this step in which you must select the products you want to hire and that will help you achieve your goals. Remember that one of the keys is the risk you can assume, so you should always keep it in mind.
However, as already mentioned, robo-advisors are a good alternative because they will always seek to create a portfolio for you according to your situation, preferences, and risk profile. Even so, as a piece of advice, always keep in mind low-risk savings products in your portfolio, such as pension plans or savings portfolios.
Investments in sustainable products
Once you are clear about all of the above, another piece of advice is to try to introduce sustainable or socially responsible products in your portfolio, since they have demonstrated, in addition to the social benefit, high returns. In addition, the profitability obtained, on average, is being higher in this type of products than in other ‘more conventional’ ones. So, take advantage of this feature, while making this world a better place for everyone.
Achieving financial sustainability with inbestMe
An additional step to the previous ones is to find the best manager or platform to achieve financial sustainability that later allows us to meet our life goals. In this case, we recommend you to do it with inbestMe, which has been helping people in this process for more than five years and for which it has received several awards.
inbestMe offers its clients a huge range of opportunities, ranging from a totally secure and high-yield savings portfolio to its own pension plans for different profiles and with an environmental and socially responsible vocation. In addition, it has a totally free financial advice and investment management service, backed by a number of top-level experts who work not only to guide in the creation of portfolios, but also to guide users. In addition, at a reduced cost, that allows you to obtain a higher total return for your savings.
