Spending Right: Differentiate between wants and needs

Spending right? Doesn’t that sound like an oxymoron? Think of it: we spend money on something because we think we need it or it will make us happy. So what’s wrong with that?

Well, it was indeed right to spend on things until the so-called economic reforms swelled many wallets. These days, financial advisors would swear, people just don’t know how to spend right. This is because many of us don’t distinguish the difference between “want” and “need” anymore.

“Earlier, when clients used to come for the first time we would be shocked to find the wrong investment choices they have made. These days most people don’t have any investments at all. All they have is huge debt and they are desperate to get out of the trap.

Sure, getting a grip on want and need may help you draw a line when it comes to loosening of your purse strings. However, making that distinction is not that easy.


Save Enough


One easy way to ward off the guilty pangs of sinful pleasures is to have a saving target. Try to save at least 25% (the more the better) of your income.

Feel free to splurge the rest of the money, provided you don’t compromise on your saving target. A word of caution: mindless spending invariably devours your savings. So, learn the balancing act.


Penny Pinching

Try to save wherever you can without compromising on your requirement. For example, you can watch a movie in a week day after work in the same multiplex at least 50% cheaper.

Ditto for shopping when the sale is on or holidaying when there is heavy off-season discounts. You are not compromising on the experience, but still manage to save some money.



Feet on the Ground

Don't get carried away by the hefty increment or the salary jump you managed with your job hopping. Keeping your eyes only on the income may land you in a soup.

This is because most of us have the tendency to believe that we are going to earn even higher pay pack in future and we have the right to spend recklessly.

However, a quick reality check would bring you down to earth.Think of the economic downturn and your friends who lost their job or those who were forced to take a pay cut.


Retail Therapy

The advent of swanky malls is an added incentive to those who believe in shopping as a mood elevating exercise. Somehow it gives most people a sense of euphoria even when they had a not-so good-day at home or work. However, the temporary high would vanish the moment a bloated credit card bill arrives at the door step.

Financial advisors say such impulsive purchases are the root cause for personal finance disasters. They would like individuals to remember that every rupee value has an opportunity cost, which is gained or lost depending upon where you have deployed it.

The opportunity cost is highest if invested, high if saved, lower if repaid and lowest if spent. Before stepping into a mall next time, make a list of things you want to purchase. It is the most effective remedy against impulsive buying.

So, whats your view on this.....