A year back I wrote a post on money management. Now, one year hence I wanted to jot down what new I learnt in the last year for life is short to learn everything on our own and money scarcer still to spend carelessly. Here’s what this year taught me:
- When you don’t have enough, every rupee has an opportunity cost associated to it. Spend wisely: As simple as that. When you are spending on something you are losing opportunity to save/spend on something else. So, watch out on where you are spending.
- You cannot save big chunks of money. Real saving happens in the small change: I always wanted to save substantial amounts. But, after running out of money, by the month end, sorry, by the second week, I could hardly do this. If you know you want to but cannot save 5000 rupees every month but know you can definitely save 500, do that than wait. Atleast a year or two later you’ll have some savings instead of none.
- Ability to spend does not mean that if you earn, you have money you spend. It means, spending after taking care of all your necessities. My attitude towards money went like this – no money to spend money on all that I’ve always wanted/dreamt to spend money on necessities first, savings second and if left (which is hardly) then on wants. Let’s see an example. Once I wanted a Bose headset. I couldn’t afford one. Then, when I started working I quickly bought one, even if meant I’ll hardly have anything left for the entire month. But, today, I’ll think twice. I’ll think, just because I can afford does not mean I should buy. Because, ‘enough’ to me now means, the money left after spending on bills, necessities and savings, which I may or may not have. Probably that’s how we all change with age and responsibility. But, it’s equally frustrating and humbling to know your limits.
- To paraphrase rich dad – “how long will you be able to maintain the same lifestyle after you quit your job? That shows how wealthy you are”: Precisely that. If you lose your job today or decide to quit, how long can you maintain your existing lifestyle? That shows your wealth. Now, how is your lifestyle? Are you already living on borrowed money? Most of us live beyond our means. You disagree? Think if you can live without your credit cards. We are constantly inundated with ads selling us the most important thing we need to be (finally) happy and it is very very difficult to resist that lure. Add to that, is the pressure to keep up with the Joneses which is all the more easy today thanks to social media. But, how much can we afford? Can we be honest atleast with ourselves? And, agree to drop off the rat race keeping our egos aside? All of us are highly ambitious (aren’t we heckled if we have anything lower?), and are in a culture which encourages ambition. Here, man’s reach always exceeds his grasp. We’ll never ‘have’ everything we want but attempting to, will only encourage spending beyond our means. Charles Dickens once said in David Copperfield, “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” More than ever, we (I) need to heed to this.
- Save first and spend. ’Cause your expenses will always be more than your earnings: When I started working, I had expenses beyond my salary. Then, I thought, next year after my hike, I’ll have enough and will finally be able to save. Now, 8 years later, I still am on the same cycle. And, I don’t think I’m alone. But, in waiting to earn enough, I postponed saving. ‘I hardly have enough to get through, from where should I save?’ I reasoned with myself. But, now I know ’cause, 8 years hence, my expenses are more than my salary. So, I’ve started saving.
- Know your values. Know what’s important to you and your family. And, then spend on that. Without this, everything goes down the drain: It’s very easy to spend on anything and everything. But, unless you know what is important to you and to your family and what values you cherish you’ll end up spending on everything but the one you want. I read somewhere the Steve Jobs sat with his family multiple times to decide on what washing machine they would purchase for the household. Did he really have to? He could’ve purchased anything and everything right? But, why did he do that? Easy to say he was a nerd, but, I think he was just asking himself and his family – what do we expect from that washing machine? and which one serves that purpose well?
- It is often said, we work hard to buy stuff we have no time to enjoy. Ask yourself, before you purchase something – will you have time to enjoy that? When the gaming bug hit me, I bought a Nintendo DS, a PS3 and a Sony PSP. ‘I love gaming, obviously I need all of them’ I again reasoned with myself. I only ended playing on the PS3. Though I could afford other systems, I didn’t have enough time to play all. So, all the money I spent on the other systems was as good as wasted. Time can be a very good indicator while spending. When you are tempted into buying something, ask yourself, “Will I be able to enjoy this as much as I think I will? Will I have enough time? Given the amount of time I’m going to spend with this, is it worth the cost?”
Financial freedom plays a very important role in maintaining ‘peace’ in our lives. So, we owe it to ourselves to be more careful and wise in using up or stocking up on vitamin M(oney).