The importance of perspective: short term and long term in decision making

 In the world of finance and business, planning and sound decision making are critical to success. A crucial factor to consider when strategizing is the difference between short term and long term.    

Understanding these concepts will allow you to set realistic goals, allocate resources efficiently and evaluate the results of your actions more accurately.

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Short-term and long-term definition

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Short-term and long-term are relative terms that depend on the specific context. In general terms:

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• Short-term: refers to a relatively short period of time, generally less than oneñy. In the ámbito financial, it can refer to periods ranging from a few days to a year.
• Long-term: Covers a longer period of time, generally longer than one year. In finance, it can range from several years to days
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The specific length of each period will depend on the objective or project being analyzed. For example, for a food company, the short term might refer to the period of production and sale of a specific batch of products, while the long term might refer to the development of a new product or expansion into a new market.

Keys to differentiate between short term and long term

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There are some keys that will help youán differentiate between short term and long term when making financial decisions:

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• Time horizon: The main factor is the time horizon associated with the objective or project. Short-term decisions focus on immediate goals and short-term results. Long-term decisions focus on future goals and long-term outcomes.
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• Level of uncertainty: Short-term decisions are usually based on more accurate information with a lower degree of uncertainty. Long-term decisions involve a higher degree of uncertainty, since the future is inherently unpredictable.
• Risk level: Short-term decisions generally involve lower risk, as the time horizon is shorter and allows for greater adaptability. Long-term decisions may involve greater risk due to the uncertainty of the future.
• Flexibility: Short-term decisions tend to be more flexible and can adapt more easily to changing circumstances. Long-term decisions tend to be less flexible and require more planning and commitment.

Examples of the difference between short-term and long-term in finance

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Following are some examples of the difference between short term and long term in financial decision making:

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• Cash management: In the short term, a company can focus on managing cash flow to cover its immediate obligations. In the long term, it can focus on optimizing its capital structure to finance its growth.
• Investment: In the short term, an investor can focus on short-term stock trading for quick gains. In the long term, he can focus on building a diversified portfolio to achieve his long-term financial goals, such as retirement.
• Budgets: A short-term budget can focus on controlling monthly expenses and meeting immediate financial obligations. A long-term budget can focus on saving for specific goals, such as buying a home or college education for children.

Importance of the short-term and long-term outlook

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Understanding the difference between short-term and long-term is crucial to making sound financial decisions.

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• Comprehensive view: allows you to have a more comprehensive view of your financial situation and set realistic goals for both the short and long term.
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• Efficient resource allocation: Helps you allocate your financial resources efficiently, balancing immediate needs with future goals.
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• Accurate evaluation: It allows you to evaluate the results of your financial decisions more accurately. You can analyze how short-term decisions impact your long-term goals.
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Conclusión

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The distinction between short-term and long-term is a fundamental concept in financial planning. By understanding this difference, you can make more informed decisions, optimize the use of your resources and achieve your financial goals with greater success.

Develop strategic thinking that allows you to balance the needs of the present with planning for the future. Remember that short-term decisions must contribute to the achievement of your long-term goals. Analyze your circumstances, define your goals, and make financial decisions with a holistic perspective that allows you to build a sound financial future.