Should you save money or should you live life king size and enjoy your life – is one of the perennial question about people who are interested in doing a bit of financial planning. (Of course, the question doesn’t arise if you don’t do financial planning at all – you’ll, in all probability chose the latter).
Taking a step back, one needs to understand what is meant by “living life king size” in the above? Rather than going into an attempt to give a standard definition, I’ll try to pose scenarios –
- Do you always want the latest model of iPhone? And the iPad? And you are willing to consider buying an Apple Watch also?
- Your car needs an upgrade every few years? From an Alto to i10 to Honda City to (hopefully!) CRV in few years.
- For you affordability of things means easy access to EMIs?
- You want to keep upgrading something or the other in your house every few months – One year it may be the cupboards, the other year it may be the sofas, and the next year it may be the new TV and so on. And you love buying them on EMIs?
- You don’t think twice before flying off to Goa (from Mumbai) or Shimla (From Delhi) and so on for a weekend trip?
- Do you love buying new shirts/ tops every month and new pair of jeans every quarter? And your shoes fill half of your cupboard?
- Are you a valued customer of Swiggy/ Foodpanda and other food delivery apps which you use thrice a week. And weekends are spend partying at the Hard Rock Cafe or something similar?
- You haven’t used a bus/ train/ metro in ages and you are a valued customer of Ola/ Uber and several airlines.
- You take yearly gym membership (with personal trainer) on 2nd January and stop going on 15th January?
- You watch movie every weekend, and that too on Saturday/ Sunday evenings at a PVR in around the central business district, located 10-15 km from your home?
- You like your house to be big so that you can store all kinds of stuff you have accumulated over the years?
There is no end to the avenues you can spend money and enjoy. And it is important to enjoy thing you enjoy! Earning may not make any sense if you don’t spend a part of it in doing things you love or if doesn’t provide you some convenience.
At the same time, like most of the other things, there is a trade off involved. You can either splurge on thing you want then and now or save a part of for rainy day(unless you are damn rich!). If latter is a part of your plan, then it may be important to prioritize what expenses are important and what are mere gratifications which may not matter eventually. What is the opportunity cost of saving/ splurging? And what is the future value of this opportunity cost.
For instance, future value of Rs. 5K you save by not partying over the weekend may be Rs. 10K few years down the line, had you invested the same somewhere. Or the Rs. 10k you save by buying only 1 jeans and 3 shirts in a year instead of 4 jeans and 8 shirts may be worth 20K in 5 years if your equity SIPs do well!
There are no easy answers to what is the ideal trade off of splurging versus saving (hence investing!) but if one plans to plan for the road ahead, one needs to consider the trade off.
What do you think?
Originally published here