A Broke Person’s Guide to Money Management

Why me? in the whole world to talk about money? Simple – because I’ve driven myself to financial hell. I am the best bad example you can parade around. The guy you should not emulate. Over the last 4/5 years when I actually started to sober up and see through my expenses, I understood money management is not just about where to invest, but a lot about our personalities. What money means to each of us is different and subsequently the way we use it. So, it is important to understand ourselves and our inadequacies to understand why we spend in the way we spend. I’ve noticed how people around me spend money and tried to understand why they spend so trying to label them for fun. The list is limited (with no intention of hurting anyone) and not exhaustive. But, I’m sure we may recognize ourselves, our partners, families & friends in this.

Who are you?

• The Showman – Folks who decorate their houses, buy stuff to “show off” to others. They either treat their houses as museums or palaces open for public to view. They can goto any extent to ‘make an appearance’.
• The Compulsive Spender – Folks who cannot stand having money in their account. They are blessed with an itch to spend everything and love to see their accounts empty. There is necessarily no pattern or reason in their expenditure other than picking whatever is on their mind.
• The Bare-minimum – Folks who’ll buy the least they can get by with. Want a pen? they’ll never go for a Waterman. They’ll make do with Reynolds 045. It serves the purpose right? Want to eat? They’ll not step into a restaurant, they’ll visit the nearest street vendor. Serves the purpose right? Basically these are the people who’ll watch a movie in 10 rupees ticket and argue with you as to why it is not a sound strategy when people who bought the 20 rupees ticket also watch the same? Can’t argue with that, can we?
• The Hoarder/Sales guy – Folks who always see a rainy day just round the corner. I think they worry so much that they work themselves to sickness thus converting their fear to reality. They goto every sale in town, buy stuff which they don’t necessarily need but think might be of some use in the future and store it in the house even though most of the stuff they bought in the last sale is still lying unused.
• The Inadequate – These are the folks who go shopping after a break-up. As if that was not enough to worry about they rake up a bill so huge that they now worry about this than the lost relation. They try to fill some emotional hole in themselves with stuff as if more stuff will just fill the hole up.
• The Miser – Some people just hate to spend. These modern day Scrooges not just hate spending but cant stand even others spending, so ’never hesitate to offer their ‘piece of mind’ to us however unwelcome it might be. They seem to believe ‘nothing in their life is worth spending money on’.
• The Bored – These folks have nothing better in life, so go shopping. These are generally the majority of the population we see in malls every weekend. I wonder what they think of me? Hmm..
• The Wiseguy – Ah, at last, the mythical wise guy. The one who knows the value of money to not to squander it but also does not hesitate to spend on what he values. Funny part is, all of us think we are the wiseguys.

I leave it upto you to decide what kind of a person you are. But, I think all of us have mixed traits. None of us are an exemption, including me – a compulsive bored hoarder.

The knowledge of why we spend the way we spend should help us see through our expenses and help us control the urge to spend. But, nevertheless I wish I had some guidance/help while forming my spending habits. (I did read Rich Dad/Poor Dad though, which I greatly ignored). But, if I could go back and start again, what would I do? What do I wish I had known?

• Find out what matters to you.
• Narrow down your hobbies – life is too short to indulge in various vices.
• Values change as we grow, so will your spending habits – so stick to the core vices you choose.
• You don’t become rich overnight.
• Know your risk appetite.
• There’s always an opportunity cost – invest/spend carefully.
• Money begets money – if you know where to invest. To know where to invest – learn.
• Invest in assets – items which appreciate in value over time – bonds/stocks/gold etc; not in liabilities that only increases expenses (From Rich Dad/Poor Dad).
• Use the returns on your investment to invest again.
• Become comfortable with money in hand. If you are driven by a itch to spend immediately, deliberately sleep on it. Postpone the purchase for a few days. Buy only if the itch persists.
• Decide if you can make do with the ‘bare minimum’ or need ‘the best’ when buying.
• Cover your bases – save first for health, retirement, bills, expenses for major milestones in life (studies, marriage, etc) – I know you can’t save for all. So, start with the one most important to you.
• There is no point in saving if you are not spending and there will be no spending if there are no savings.

Money is very important in life. Those who do not agree haven’t been poor anytime, and those who think only money matters haven’t been rich anytime. Money is only as good as the end to which it is used. Understanding its importance, forging a comfortable relationship with it, not using it to fill-in the emptiness of our lives, fighting the Herculean battle against all temptations out there, spending and having enough to spend on what we value are some baby steps we can take to reach money management heaven.